FalconStor: Fiscal 4Q14 Financial Results

 FalconStor Software, Inc. announced financial results for its fourth quarter ended December 31, 2014.

“As we begin 2015, we believe FalconStor is well positioned for success. Next week we are announcing the availability of our new offering, FreeStor, which addresses the all-flash array and cloud markets with a horizontal approach to data management, along with a disruptive subscription pricing model. Feedback from customers, partners and prospects in support of our new image and message #BEFREE has been very encouraging,” said Gary Quinn, FalconStor president and CEO. “As we have indicated before, the path to growth and profitability will not be a straight line. We believe that throughout 2015, we will measure our success by the partnerships we can deliver within, the all-flash array community, the hybrid/private cloud service providers, and those large enterprise customers who are looking to take back control of their storage infrastructure. During 2014, we were pleased with the strong performance in EMEA from an execution and revenue perspective, although 2015 could bring us some headwinds. Our Asia and Japan business finished 2014 in position to take advantage of our new marketing initiatives and new product deliverables. Finally, the US and Canada markets were better in Q4 2014, but still need improvements for 2015. We remain optimistic for the coming year which is our 15th year of innovation.“

• Financial and Business Highlights and Overview:
• Q4 2014 total revenues totaled $11.8 million compared with $11.2 million in Q3 2014 and $14.7 million in Q4 2013.
• Q4 2014 bookings totaled $13.6 million compared with $8.9 million in Q3 2014 and $16.3 million in Q4 2013.
• Deferred revenue as of December 31, 2014 totaled $36.5 million, an increase of 23% compared with December 31, 2013, and an increase of 7% compared with September 30, 2014.
• Generated $0.5 million of positive cash flow from operations for the year ended December 31, 2014, compared with cash used in operations of $11.1 million for the year ended December 31, 2013; closed the quarter with $21.8 million of cash, cash equivalents and marketable securities, compared with $26.6 million at September 30, 2014

During the fourth quarter of 2014

• Made $4.7 million in payments associated with the repurchasing of 4,298,533 shares of its common stock;
• Received $3.0 million upon completion of our joint development agreement, which has been recorded in deferred revenue;
• Made $0.2 million in payments associated with the ‘rebalancing’ program from 2013 and $0.2 million in payments related to the Series A redeemable convertible preferred stock dividends accrued for at September 30, 2014.
• Non-GAAP expenses totaled $14.0 million in Q4 2014, compared with non-GAAP expenses of $13.1 million in Q3 2014 and non-GAAP expenses of $13.8 million in Q4 2013;
• Non-GAAP gross margins were 78% in Q4 2014, compared with non-GAAP gross margins of 77% in Q3 2014 and non-GAAP gross margins of 78% in Q4 2013.

Other items

• Final acceptance of the final deliverables under our joint development agreement with Violin Memory software occurred on November 16, 2014. The company has completed all of the required milestones deliveries and has collected the entire $12.0 million due under the joint development agreement over the past two fiscal years.
• During the fourth quarter of 2014 the company entered into a purchase agreement to acquire 4,298,533 shares of the company’s common stock held by the Estate of ReiJane Huai for $4.7 million and the shares were transferred to the company’s treasury account.

Financials
Total revenues for the fourth quarter of 2014 were $11.8 million compared with $14.7 million in the same period a year ago. GAAP loss from operations for the fourth quarter of 2014 was $2.3 million, compared with an operating loss of $1.0 million for the fourth quarter of 2013.

Included in the operating results for the three months ended December 31, 2014 and 2013 were:

• a benefit of $0.2 million and an expense of $0.1 million, respectively, of investigation, litigation and settlement related costs; (
• $0.3 million and $0.4 million, respectively, of share-based compensation expense; and
• $0.1 million and $1.3 million, respectively, of restructuring costs.

GAAP net loss for the quarter was $2.5 million compared with net income of $0.9 million for the same period a year ago. Included in our net (loss) income for both the three months ended December 31, 2014 and 2013 was an income tax provision of less than $0.1 million. Net loss attributable to common stockholders for the quarter, which includes the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock and the accrual of preferred stock dividends, was $2.8 million, or $0.06 per share, compared with income of $0.6 million, or $0.01 per share, for the same period a year ago.

Non-GAAP loss from operations was $2.2 million for the fourth quarter of 2014, compared with non-GAAP income from operations of $0.8 million for the same period a year ago. Non-GAAP net loss was $2.4 million, or $0.05 per share, in the fourth quarter of 2014, compared with non-GAAP net income of $0.6 million, or $0.01 per share, in the fourth quarter of 2013. Non-GAAP results exclude the effects of stock-based compensation, costs associated with the company’s investigations, litigation and settlement related costs, restructuring costs, certain tax items and the effects of our Series A redeemable convertible preferred stock.

Total revenues for the year ended December 31, 2014 were $46.3 million compared with $58.6 million in the same period a year ago. GAAP loss from operations for the year ended December 31, 2014 was $6.1 million, compared with an operating loss of $13.6 million for the year ended December 31, 2013.

Included in the operating results for the year ended December 31, 2014 and 2013 were:

• a benefit of $5.4 million and an expense of $0.4 million, respectively, of investigation, litigation and settlement related costs;
• $1.5 million and $1.7 million, respectively, of share-based compensation expense; and
• $1.1 million and $3.6 million, respectively, of restructuring costs. GAAP net loss for the year ended December 31, 2014 was $7.2 million compared with $10.9 million for the same period a year ago.

Included in our the loss for the year ended December 31, 2014 was an income tax provision of $0.5 million, compared with an income tax benefit of $1.6 million for the year ended December 31, 2013. Net loss attributable to common stockholders for the year ended December 31, 2014, was $8.5 million, or $0.18 per share, compared with $11.3 million, or $0.24 per share, for the same period a year ago.

Non-GAAP loss from operations was $8.9 million for the year ended December 31, 2014, compared with non-GAAP loss from operations of $7.9 million for the same period a year ago. Non-GAAP net loss was $10.0 million, or $0.22 per share, for the year ended December 31, 2014, compared with a non-GAAP net loss of $9.5 million, or $0.20 per share, for the same period a year ago.

The company closed the quarter with $21.8 million in cash, cash equivalents and marketable securities. Cash flow provided by operations for the three months ended December 31, 2014 was $0.5 million compared with cash used in operations of $3.6 million during the same period in 2013. Deferred revenue at December 31, 2014 was $36.5 million, compared with $29.8 million at December 31, 2013.