FalconStor: Fiscal 2Q19 Financial Results

Financial Highlights for 2FQ19:

• Increased global billings by 15% Y/Y
• Captured 114% of additional sales in the Americas, as compared to the same period of the previous year,
• Y/Y sales from VTL grew 82%,
• China-specific risk exposure declined to 2% of total sales, as compared to 12% in 2018.

“2FQ19 marked an important milestone in our work to return FalconStor to growth, as we increased global billings by 15% as compared to 2FQ18,” said Todd Brooks, CEO. “I am especially pleased with the 82% Y/Y 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 backup and archive. Our solution allows an enterprise to leverage existing backup policies and procedures, while ensuring the most stringent backup window is met, 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 storage efficiency.“

“It is important to note that our 2FQ19 billings grew as compared to 2FQ18 despite the fact we intentionally executed several actions to reduce our revenue exposure in China during the quarter,” he continued. “While we will work diligently to support our existing China-based enterprise customers, we have elected to 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,” he 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 2FQ19
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 20-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, the firm 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 growth in sales, 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 key proprietary technology offerings.

Overall, total revenue for 2FQ19 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 existing installed base and the acquisition of new customers. Second, customer retention, which sustains maintenance renewal revenue over long term sales arrangements.

After $0.5 million term loan repayment, the storage software firm ended the quarter with $2.4 million of cash and cash equivalents, as compared to $3.1 million at December 31, 2018. Plan is to be cash flow positive for 2019.