FalconStor Software Announces Third Quarter of 2021 Results

Rhea-AI Summary

FalconStor Software (OTCQB: FALC) reported a 35% year-over-year increase in subscription revenue for Q3 2021, reaching $0.8 million, driven by managed service provider partnerships and a new pricing model. Total revenue decreased by 26% to $3.3 million, with GAAP net income of $0.4 million, down from $1.5 million in Q3 2020. The company revised its 2021 revenue guidance to between $14.1 million and $15.1 million due to lower-than-expected results. Ending cash increased to $3.5 million from $0.9 million in the prior year.

Positive

• 35% increase in subscription revenue to $0.8 million in Q3 2021.
• 54% increase in subscription revenue to $2.6 million for the first nine months of 2021.
• Ending cash position improved to $3.5 million compared to $0.9 million last year.
• New managed service provider partners added for StorSafe solution.

Negative

• Total revenue declined by 26% year-over-year to $3.3 million in Q3 2021.
• GAAP net income decreased to $0.4 million from $1.5 million in Q3 2020.
• Total revenue down 7% for the first nine months of 2021 compared to the previous year.
• Revised 2021 revenue guidance indicates lower performance expectations.

Managed Service Provider Adoption and Hybrid Cloud Momentum Fuel Subscription Revenue Growth Partially Offsetting Declines in Legacy Business 

• Delivered a 35% year-over-year increase in software subscription revenue for Q3 and a 54% year-over-year increase for the first nine months of 2021
• Added two new managed service provider (MSP) partners for our StorSafe secure backup-as-a-service solution under new disruptive monthly recurring pricing model launched in Q3
• Generated GAAP EPS of $0.01 per share during the quarter and GAAP EPS of ($0.11) per share for the first nine months of 2021

AUSTIN, Texas--(BUSINESS WIRE)-- FalconStor Software, Inc. (OTCQB: FALC), the trusted data protection software leader modernizing disaster recovery and backup operations for the hybrid cloud world, today announced financial results for its third quarter, which ended on September 30, 2021, delivering a 35% year-over-year increase in subscription revenue fueled by the growth in managed service provider business and market adoption of hybrid cloud data protection solutions.

“We continue to make solid progress against our strategic plans to reinvent FalconStor and enable secure hybrid cloud backup and data protection,” said Todd Brooks, FalconStor CEO. “Driven by continued adoption of the FalconStor StorSafe long-term data protection solution, we accelerated our strategic focus on a recurring revenue model better aligned with today’s market. As part of this focus, we introduced a new and disruptive recurring monthly pricing model for our managed service providers, and continued migrating our installed based to a subscription revenue model. As a result, total subscription revenue increased 35% compared to Q3 of 2020, and 54% for the first nine months of 2021 compared to the same period last year.

“While we are encouraged by our subscription revenue growth, we are continuing to work toward our goal of consistent total revenue growth, as total revenue decreased by 26% year-over-year during the quarter and is down 7% for the first nine months of 2021 compared to the same period in 2020. As the recurring percentage of total revenue continues to increase over the next several quarters, and the reduction in perpetual license sales decreases, we are committed to driving more predictable total revenue growth, delivering profitability, and generating cash from operations, as we invest to grow.

“Migration to the cloud, data center rationalization, and increased leverage of outsourced managed services are top priorities for enterprise CIOs in the post-pandemic world, and FalconStor plays a vital role in each,” added Brooks. “We are excited by our hybrid cloud focus, the efficient routes to market that we are building through our managed service provider partners, and trust our shareholders have placed in our team to deliver customer and shareholder value.”

Third Quarter 2021 Financial Results

• Subscription Revenue: 35% increase to $0.8 million, compared to $0.6 million in the third quarter of fiscal year 2020
• Subscription Revenue % of Total Revenue: 23%, compared to 13% in the third quarter of fiscal year 2020
• Total Revenue: $3.3 million, compared to $4.4 million in the third quarter of fiscal year 2020
• Total Cost of Revenue: $0.4 million, compared to $0.4 million in the third quarter of fiscal year 2020
• Total Operating Expenses: $2.4 million, compared to $2.3 million in the third quarter of fiscal year 2020
• GAAP Net Income: $0.4 million, compared to $1.5 million in the third quarter of fiscal year 2020
• Ending Cash: $3.5 million, compared to $0.9 million in the third quarter of fiscal year 2020

Nine Months Ended 2021 Financial Results

• Subscription Revenue: 54% increase to $2.6 million, compared to $1.7 million in the first nine months of 2020
• Subscription Revenue % of Total Revenue: 25%, compared to 15% in the first nine months of 2020
• Total Revenue: $10.4 million, compared to $11.1 million in the first nine months of 2020
• Total Cost of Revenue: $1.5 million, compared to $1.4 million in the first nine months of 2020
• Total Operating Expenses: $8.6 million, compared to $7.9 million in the first nine months of 2020
• GAAP Net Income: $0.4 million, compared to $1.2 million in the first nine months of 2020
• Ending Cash: $3.5 million, compared to $0.9 million in the first nine months of 2020

Guidance

Given our less than anticipated year-to-date total revenue, we are revising the 2021 guidance we have previously provided.

		Revised 2021 Guidance
Guidance (in $ millions)		Low			High
Total Revenue		$	14.1		$	15.1
Adjusted EBITDA*		$	3.5		$	4.5
%			25%			30%
Net Income		$	0.6		$	1.7
%			4%			11%
Rule of 40 (Revenue Growth % + Adjusted EBITDA %)			20			33

*Adjusted EBITDA adds back Non-Operating and Other Expenses and Income

Conference Call and Webcast Information

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

WHEN: Wednesday, November 10, 2021, 4:00 P.M. Central Time

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

FALCONSTOR THIRD 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/4614368145758035469

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: 342-776-416

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 the trusted data protection software leader modernizing disaster recovery and backup operations for the hybrid cloud world. The Company enables enterprise customers and managed service providers to secure, migrate, and protect their data while reducing data storage and long-term retention costs by up to 95%. More than 1,000 organizations and managed service providers worldwide standardize on FalconStor as the foundation for their cloud first data protection future. Our products are offered through and supported by a worldwide network of leading managed service providers (“MSPs”), systems integrators, resellers, and original equipment manufacturers (“OEMs”).

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
		September 30, 2021				December 31, 2020
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	3,474,784			$	1,920,656
Accounts receivable, net		2,285,117				2,836,571
Prepaid expenses and other current assets		1,537,267				1,837,596
Contract assets, net		169,835				254,483
Inventory		15,421				15,275
Total current assets		7,482,424				6,864,581
Property and equipment, net		193,028				197,020
Operating lease right-of-use assets		140,238				536,272
Deferred tax assets, net		310,755				330,552
Software development costs, net		14,345				19,278
Other assets, net		114,828				863,964
Goodwill		4,150,339				4,150,339
Other intangible assets, net		64,295				100,134
Contract assets		192,286				343,934
Total assets		$	12,662,538			$	13,406,074
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable		$	335,092			$	453,791
Accrued expenses		1,018,878				2,293,765
Operating lease liabilities		87,381				665,074
Short-term loan, net of debt issuance costs and discounts		—				3,320,863
Deferred revenue, net		3,709,005				4,603,270
Total current liabilities		5,150,356				11,336,763
Other long-term liabilities		637,099				703,889
Notes payable, net		2,150,574				754,000
Operating lease liabilities		53,430				—
Deferred tax liabilities, net		525,512				513,027
Deferred revenue, net		1,569,813				1,765,859
Total liabilities		10,086,784				15,073,538
Commitments and contingencies
Series A redeemable convertible preferred stock		14,075,434				12,940,722
Total stockholders' deficit		(11,499,680)				(14,608,186)
Total liabilities and stockholders' deficit		$	12,662,538			$	13,406,074

FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Revenue:
Product revenue		$	1,547,013			$	2,521,695			$	5,288,747			$	5,202,713
Support and services revenue		1,736,456				1,914,705				5,081,795				5,913,486
Total revenue		3,283,469				4,436,400				10,370,542				11,116,199
Cost of revenue:
Product		41,351				48,895				298,966				250,185
Support and service		400,934				367,063				1,233,067				1,109,379
Total cost of revenue		442,285				415,958				1,532,033				1,359,564
Gross profit		$	2,841,184			$	4,020,442			$	8,838,509			$	9,756,635
Operating expenses:
Research and development costs		711,273				600,430				2,032,360				1,809,354
Selling and marketing		1,610,635				1,026,241				4,267,010				3,027,372
General and administrative		633,954				358,701				2,129,921				2,297,451
Gain on litigation settlement		(632,600)				—				(632,600)				—
Restructuring costs		68,704				317,595				792,754				758,740
Total operating expenses		2,391,966				2,302,967				8,589,445				7,892,917
Operating income (loss)		449,218				1,717,475				249,064				1,863,718
Gain on debt extinguishment		—				—				754,000				—
Interest and other expense		(58,257)				(159,994)				(489,264)				(586,082)
Income (loss) before income taxes		390,961				1,557,481				513,800				1,277,636
Income tax expense (benefit)		16,529				11,272				63,804				44,709
Net income (loss)		$	374,432			$	1,546,209			$	449,996			$	1,232,927
Less: Accrual of Series A redeemable convertible preferred stock dividends		288,802				266,007				848,898				812,362
Less: Accretion to redemption value of Series A redeemable convertible preferred stock		13,517				175,335				285,814				366,566
Net income (loss) attributable to common stockholders		$	72,113			$	1,104,867			$	(684,716)			$	53,999
Basic net income (loss) per share attributable to common stockholders		$	0.01			$	0.19			$	(0.11)			$	0.01
Diluted net income (loss) per share attributable to common stockholders		$	0.01			$	0.19			$	(0.11)			$	0.01
Weighted average basic shares outstanding		6,990,723				5,919,837				6,324,370				5,919,773
Weighted average diluted shares outstanding		7,039,421				5,959,385				6,324,370				5,943,794

FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
GAAP income (loss) from operations		$	449,218			$	1,717,475			$	249,064			$	1,863,718
Non-cash stock option expense (1)		4,916				3,822				$	14,084			$	11,392
Restructuring costs (3)		68,704				317,595				792,754				758,740
Gain on litigation settlement (5)		$	(632,600)			$	—			$	(632,600)			$	—
Non-GAAP income (loss) from operations		$	(109,762)			$	2,038,892			$	423,302			$	2,633,850
GAAP net income (loss) attributable to common stockholders		$	72,113			$	1,104,867			$	(684,716)			$	53,999
Non-cash stock option expense, net of income taxes (2)		4,916				3,822				14,084				11,392
Restructuring costs (3)		68,704				317,595				792,754				758,740
Gain on litigation settlement		(632,600)				—				(632,600)				—
Gain on debt extinguishment		—				—				(754,000)				—
Effects of Series A redeemable convertible preferred stock (4)		302,319				441,342				1,134,712				1,178,928
Non-GAAP net income (loss) attributable to common stockholders		$	(184,548)			$	1,867,626			$	(129,766)			$	2,003,059
GAAP gross margin		87		%		91		%		85		%		88		%
Non-cash stock option expense (1)		0		%		0		%		0		%		0		%
Non-GAAP gross margin		87		%		91		%		85		%		88		%
GAAP gross margin - Product		97		%		98		%		94		%		95		%
Non-cash stock option expense (1)		0		%		0		%		0		%		0		%
Non-GAAP gross margin - Product		97		%		98		%		94		%		95		%
GAAP gross margin - Support and Service		77		%		81		%		76		%		81		%
Non-cash stock option expense (1)		0		%		0		%		0		%		0		%
Non-GAAP gross margin - Support and Service		77		%		81		%		76		%		81		%
GAAP operating margin		14		%		39		%		2		%		17		%
Non-cash stock option expense (1)		—		%		—		%		—		%		—		%
Restructuring costs (3)		2		%		7		%		8		%		7		%
Non-GAAP operating margin		16		%		46		%		10		%		24		%
GAAP Basic EPS		$	0.01			$	0.19			$	(0.11)			$	0.01
Non-cash stock option expense, net of income taxes (2)		0.00				0.00				0.00				0.00
Restructuring costs (3)		0.01				0.05				0.13				0.13
Gain on litigation settlement (5)		(0.09)				0.00				(0.10)				0.00
Gain on debt extinguishment (6)		0.00				0.00				(0.12)				0.00
Effects of Series A redeemable convertible preferred stock (4)		0.04				0.08				0.18				0.20
Non-GAAP Basic EPS		$	(0.03)			$	0.32			$	(0.02)			$	0.34
GAAP Diluted EPS		$	0.01			$	0.19			$	(0.11)			$	0.01
Non-cash stock option expense, net of income taxes (2)		0.00				0.00				0.00				0.00
Restructuring costs (3)		0.01				0.05				0.13				0.13
Gain on litigation settlement (5)		(0.09)				0.00				(0.10)				0.00
Gain on debt extinguishment (6)		0.00				0.00				(0.12)				0.00
Effects of Series A redeemable convertible preferred stock (4)		0.04				0.07				0.18				0.20
Non-GAAP Diluted EPS		$	(0.03)			$	0.31			$	(0.02)			$	0.34
Weighted average basic shares outstanding (GAAP and Non-GAAP)		6,990,723				5,919,837				6,324,370				5,919,773
Weighted average diluted shares outstanding (GAAP)		7,039,421				5,959,385				6,324,370				5,943,794
Weighted average diluted shares outstanding (Non-GAAP)		6,990,723				5,959,385				6,324,370				5,943,794

Footnotes:

(1)

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Cost of revenue - Product		$	232			$	—			$	688			$	—
Cost of revenue - Support and Service		185				104				549				310
Research and development costs		167				433				167				1,289
Selling and marketing		2,915				186				8,475				554
General and administrative		1,417				3,099				4,205				9,239
Total non-cash stock based compensation expense		$	4,916			$	3,822			$	14,084			$	11,392

(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, 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 a gain for the legal settlement of a contractual dispute with a marketing/sales firm.
(6)		Represents the gain recorded when the Company's loan with the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act was forgiven on March 30, 2021.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211110005644/en/

Brad Wolfe

Chief Financial Officer

FalconStor Software Inc.

investorrelations@falconstor.com



CONTACT US AROUND THE GLOBE



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Tel: +1.631.777.5188

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Tel: +49 (0) 89.41615321.10

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Source: FalconStor Software, Inc.

FAQ

What were FalconStor’s subscription revenue figures for Q3 2021?

FalconStor reported a 35% increase in subscription revenue, reaching $0.8 million for Q3 2021.

How did FalconStor's total revenue perform in Q3 2021?

Total revenue for Q3 2021 decreased by 26% year-over-year to $3.3 million.

What is FalconStor’s updated revenue guidance for 2021?

FalconStor revised its 2021 revenue guidance to between $14.1 million and $15.1 million.

How much cash did FalconStor have at the end of Q3 2021?

FalconStor's ending cash increased to $3.5 million at the end of Q3 2021.

What growth did FalconStor experience in subscription revenue for the first nine months of 2021?

FalconStor reported a 54% increase in subscription revenue to $2.6 million for the first nine months of 2021.