FalconStor: Fiscal 4Q19 Financial Results

FalconStor Software, Inc. announced financial results for its fourth quarter ended December 31, 2019.

Financial highlights for FY19:

• Continued to demonstrate the growth potential of innovative and modern long-term archive retention and reinstatement product with 38% sales growth compared to 2018,
• Increased new customer sales Y/Y by 22% across all product lines compared to 2018
• Achieved total Y/Y sales growth of more than 6% in its core regions, which excludes China, compared to 2018,
• Intentionally reduced its sales exposure in China to 3% of total sales in 2019 from 12% in 2018,
• Entered into an amendment to our term loan on December 27, 2019, providing the company with an additional $1,000,000 of gross proceeds for operations and R&D investment.

Key product highlights

• Continued investment in patent-pending next-gen long-term archive retention and reinstatement product, StorSafe, scheduled for launch in 1H20,
• Released expanded unified management and analytics console, StorSight which integrates with all company’s products,
  Expanded partnerships with cloud storage providers, object storage providers, and MSPs.

“The strategic decisions we made throughout 2019 to place additional commercial focus on our long-term archive retention and reinstatement product, within our core regions, delivered encouraging growth in those areas throughout 2019, and has created a focused and healthy foundation for continued growth in 2020,” said Todd Brooks, CEO. “According to IDC, up to 75% of data managed by an enterprise is directly related to routine backup and archive. Our long-term archive retention and reinstatement 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 and object storage alternatives such as Hitachi Content Platform), Wasabi, IBM-COS, AWS, and Azure are available for improved storage efficiency.

“To build upon the foundation we have built, I am excited by the progress our team has made in developing our next gen long-term archive retention and reinstatement product, StorSafe, which will retain the core benefits of our existing product, while adding innovative multi-cloud archive storage orchestration capabilities to dramatically reduce storage costs, improve security, simplify compliance, and streamline archive data portability. Archive data is critical for the modern enterprise, not only in terms of risk and compliance management, but also in terms of active use of archive data for strategic advantage.  StorSafe is scheduled for beta launch in the first half of 2020.”

Additional Financial Highlights for 4FQ19
While the firm delivered a 6% sales increase within its core regions, which excludes China, total global sales revenue for the three months ended December 31, 2019 decreased to $4.1 million compared to $4.8 million in the prior year. This revenue decrease was primarily driven by firm’s intentional strategy to decrease commercial focus in China, and work to refocus development efforts within its BC driven data replication products to those enhancements and innovations aligned with its largest and most strategic customers.

Overall, total operating expenses decreased 7.1% from $3.6 million for 4FQ18 to $3.3 million for 4FQ19. This decrease was primarily attributable to tighter expense controls and overall operational efficiencies which better align current business plan on a run-rate basis. These efficiencies include among other items, stream-lined personnel related costs, global overhead costs and efficiencies realized on our redesigned go-to-market coverage models. The firm will continue to evaluate the appropriate headcount levels to properly align its resources with its current and long-term outlook and to take actions in areas of the company that are not performing.

Total cost of revenue decreased 77.7% to $0.2 million for 4FQ19, compared with $0.9 million for 4FQ18. Cost of sales during the current quarter reflects a cumulative $0.4 million one time correction to properly eliminate intercompany transfer pricing adjustments associated with its AsiaPac sales during the previous three quarters of the current year. Excluding this correction, the company recorded $0.6 million in cost of sales, compared to $0.9 million during 4FQ18.
During 4FQ19, it recorded GAAP operating income of $0.6 million, compared to $0.3 million for the prior year period 4FQ18.

The vendor ended the quarter with $1.5 million of cash and cash equivalents, compared to $3.1 million at December 31, 2018.

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.