FALCONSTOR SOFTWARE, INC. | ||
(Exact name of registrant as specified in its charter) | ||
Delaware | 000-23970 | 77-0216135 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
2 Huntington Quadrangle, Melville, New York | 11747 | |
(Address of principal executive offices) | (Zip Code) |
N/A |
(Former name or former address, if changed since last report.) |
Item 2.02. | Results of Operations and Financial Condition |
Item 7.01. | Regulation FD Disclosure |
Item 9.01. | Financial Statements and Exhibits |
(d) | Exhibits | |||
Exhibit Number | Description | |||
99.1 | Press release of the Company dated July 29, 2015. |
FALCONSTOR SOFTWARE, INC. | |||
Date: July 29, 2015 | By: | /s/ Louis J. Petrucelly | |
Name: | Louis J. Petrucelly | ||
Title: | Executive Vice President, Chief Financial Officer and Treasurer |
• | REVENUE: |
◦ | Q2 2015 revenue totaled $9.6 million compared with as adjusted revenue in Q1 2015 of $10.1 million and $11.3 million in Q2 2014. In Q1 2015 revenue totaled $19.9 million, which included $9.9 million relating to the acceleration of previously deferred revenue recognized as a result of the termination of ongoing maintenance services during the first quarter of 2015 associated with our joint-development agreement. |
• | BOOKINGS: |
◦ | Q2 2015 total bookings were $8.3 million compared with $11.7 million in Q1 2015 and $13.3 million in Q2 2014. |
◦ | In Q2 2015, approximately 58% of our total product bookings were ratable as compared with 46% in Q2 2014. For the first half of 2015, approximately 65% of our total product bookings were ratable as compared with 41% during the first half of 2014, all of which is a clear indicator of our business moving to over-time revenue recognition model. |
• | DEFERRED REVENUE: |
◦ | Excluding the impact of our joint-development agreement, deferred revenue as of June 30, 2015 increased 3% and 5% compared with June 30, 2014 and December 31, 2014, respectively. |
• | CASH: |
◦ | The Company closed the quarter with $18.8 million of cash, cash equivalents and marketable securities, compared with $21.8 million at December 31, 2014. |
◦ | Cash used in operations was $1.4 million for the three months ended June 30, 2015, compared with cash provided by operations of $1.1 million for the three months ended June 30, 2014. |
• | Non-GAAP EXPENSES and MARGINS: |
◦ | Non-GAAP expenses totaled $12.3 million in Q2 2015, compared with non-GAAP expenses of $13.0 million in Q1 2015 and non-GAAP expenses of $14.1 million in Q2 2014. |
◦ | Non-GAAP gross margins were 73% in Q2 2015, compared with non-GAAP gross margins of 76% in Q1 2015 which excludes the accelerated revenue associated with our joint-development agreement recognized during Q1 2015, and 76% in Q2 2014. |
• | OTHER ITEMS |
◦ | On May 7, 2015, we released for general availability a new and innovative solution which is agnostic to any server hardware or storage hardware manufacturer; a horizontal software-defined storage platform inclusive of converged data services called FreeStor™. |
◦ | During the current quarter, the Company signed (i) three (3) OEM agreements with industry leading manufacturers located in North America, EMEA and Asia, and (ii) four (4) leading service providers located in North America, Latin America and Europe. In total for the first half of 2015 we have signed six (6) OEMs and four (4) service providers, all of which have chosen FalconStor’s FreeStor technology in various go-to-market strategies to align with their present-day business goals. |
◦ | During the quarter, the Company repurchased 92,161 shares of its common stock at an aggregate purchase price of $1.50 per share, under its stock buy-back program. |
June 30, 2015 | December 31, 2014 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,307,549 | $ | 10,873,891 | ||||
Marketable securities | 10,523,821 | 10,900,722 | ||||||
Accounts receivable, net | 6,224,034 | 8,898,680 | ||||||
Prepaid expenses and other current assets | 1,750,218 | 1,596,916 | ||||||
Inventory | 150,236 | 352,493 | ||||||
Deferred tax assets, net | 296,360 | 316,586 | ||||||
Total current assets | 27,252,218 | 32,939,288 | ||||||
Property and equipment, net | 1,911,145 | 2,147,188 | ||||||
Deferred tax assets, net | 7,503 | 7,503 | ||||||
Software development costs, net | 1,260,289 | 1,508,517 | ||||||
Other assets, net | 1,162,524 | 1,373,964 | ||||||
Goodwill | 4,150,339 | 4,150,339 | ||||||
Other intangible assets, net | 262,333 | 196,037 | ||||||
Total assets | $ | 36,006,351 | $ | 42,322,836 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,145,944 | $ | 1,266,504 | ||||
Accrued expenses | 7,779,298 | 6,939,198 | ||||||
Deferred tax liabilities, net | 23,307 | 23,307 | ||||||
Deferred revenue, net | 17,190,326 | 23,380,012 | ||||||
Total current liabilities | 26,138,875 | 31,609,021 | ||||||
Other long-term liabilities | 746,897 | 630,444 | ||||||
Deferred tax liabilities, net | 245,903 | 226,443 | ||||||
Deferred revenue, net | 9,213,624 | 13,097,215 | ||||||
Total liabilities | 36,345,299 | 45,563,123 | ||||||
Commitments and contingencies | ||||||||
Series A redeemable convertible preferred stock | 7,511,915 | 7,230,941 | ||||||
Total stockholders' deficit | (7,850,863 | ) | (10,471,228 | ) | ||||
Total liabilities and stockholders' deficit | $ | 36,006,351 | $ | 42,322,836 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenue: | ||||||||||||||||
Product revenue | $ | 3,650,504 | $ | 4,252,486 | $ | 17,620,871 | $ | 9,215,545 | ||||||||
Support and services revenue | 5,902,085 | 7,050,181 | 11,871,594 | 14,088,621 | ||||||||||||
Total revenue | 9,552,589 | 11,302,667 | 29,492,465 | 23,304,166 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Product | 718,057 | 698,222 | 1,108,281 | 1,273,346 | ||||||||||||
Support and service | 1,940,729 | 2,009,441 | 3,960,747 | 4,108,692 | ||||||||||||
Total cost of revenue | 2,658,786 | 2,707,663 | 5,069,028 | 5,382,038 | ||||||||||||
Gross profit | $ | 6,893,803 | $ | 8,595,004 | $ | 24,423,437 | $ | 17,922,128 | ||||||||
Operating expenses: | ||||||||||||||||
Research and development costs | 3,067,732 | 3,143,224 | 6,273,599 | 6,492,019 | ||||||||||||
Selling and marketing | 4,371,513 | 6,351,947 | 9,676,875 | 12,240,413 | ||||||||||||
General and administrative | 2,583,893 | 2,364,380 | 5,076,834 | 4,755,790 | ||||||||||||
Investigation, litigation, and settlement related (benefits) costs | (8,186 | ) | (5,275,920 | ) | 8,842 | (5,164,209 | ) | |||||||||
Restructuring costs | 23,495 | 562,913 | 157,971 | 786,486 | ||||||||||||
Total operating expenses | 10,038,447 | 7,146,544 | 21,194,121 | 19,110,499 | ||||||||||||
Operating (loss) income | (3,144,644 | ) | 1,448,460 | 3,229,316 | (1,188,371 | ) | ||||||||||
Interest and other income (loss), net | 98,411 | (30,982 | ) | (365,665 | ) | 19,126 | ||||||||||
(Loss) income before income taxes | (3,046,233 | ) | 1,417,478 | 2,863,651 | (1,169,245 | ) | ||||||||||
(Benefit) provision for income taxes | (378,049 | ) | 86,531 | 269,456 | 301,606 | |||||||||||
Net (loss) income | $ | (2,668,184 | ) | $ | 1,330,947 | $ | 2,594,195 | $ | (1,470,851 | ) | ||||||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 186,904 | 186,904 | 377,690 | 373,808 | ||||||||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 143,557 | 120,531 | 280,974 | 235,907 | ||||||||||||
Net (loss) income attributable to common stockholders | $ | (2,998,645 | ) | $ | 1,023,512 | $ | 1,935,531 | $ | (2,080,566 | ) | ||||||
Basic net (loss) income per share attributable to common stockholders | $ | (0.07 | ) | $ | 0.02 | $ | 0.05 | $ | (0.04 | ) | ||||||
Diluted net (loss) income per share attributable to common stockholders | $ | (0.07 | ) | $ | 0.02 | $ | 0.05 | $ | (0.04 | ) | ||||||
Weighted average basic shares outstanding | 40,964,160 | 47,919,318 | 40,949,849 | 47,975,217 | ||||||||||||
Weighted average diluted shares outstanding | 40,964,160 | 48,780,606 | 42,492,677 | 47,975,217 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
GAAP (loss) income from operations | $ | (3,144,644 | ) | $ | 1,448,460 | $ | 3,229,316 | $ | (1,188,371 | ) | ||||||
Non-cash stock option expense (1) | 425,968 | 422,054 | 800,774 | 834,715 | ||||||||||||
Legal related (benefits) costs (3) | (8,186 | ) | (5,275,920 | ) | 8,842 | (5,164,209 | ) | |||||||||
Restructuring costs (4) | 23,495 | 562,913 | 157,971 | 786,486 | ||||||||||||
Non-GAAP (loss) income from operations | $ | (2,703,367 | ) | $ | (2,842,493 | ) | $ | 4,196,903 | $ | (4,731,379 | ) | |||||
GAAP net (loss) income attributable to common stockholders | $ | (2,998,645 | ) | $ | 1,023,512 | $ | 1,935,531 | $ | (2,080,566 | ) | ||||||
Non-cash stock option expense, net of income taxes (2) | 425,968 | 422,054 | 800,774 | 834,715 | ||||||||||||
Legal related (benefits) costs (3) | (8,186 | ) | (5,275,920 | ) | 8,842 | (5,164,209 | ) | |||||||||
Restructuring costs (4) | 23,495 | 562,913 | 157,971 | 786,486 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (5) | 330,461 | 307,435 | 658,664 | 609,715 | ||||||||||||
Non-GAAP net (loss) income | $ | (2,226,907 | ) | $ | (2,960,006 | ) | $ | 3,561,782 | $ | (5,013,859 | ) | |||||
GAAP gross margin | 72 | % | 76 | % | 83 | % | 77 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin | 73 | % | 76 | % | 83 | % | 77 | % | ||||||||
GAAP gross margin - Product | 80 | % | 84 | % | 94 | % | 86 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin - Product | 80 | % | 84 | % | 94 | % | 86 | % | ||||||||
GAAP gross margin - Support and Service | 67 | % | 71 | % | 67 | % | 71 | % | ||||||||
Non-cash stock option expense (1) | 1 | % | 0 | % | 0 | % | — | % | ||||||||
Non-GAAP gross margin - Support and Service | 68 | % | 72 | % | 67 | % | 71 | % | ||||||||
GAAP operating margin | (33 | %) | 13 | % | 11 | % | (5 | %) | ||||||||
Non-cash stock option expense (1) | 4 | % | 4 | % | 3 | % | 4 | % | ||||||||
Legal related (benefits) costs (3) | 0 | % | (47 | %) | 0 | % | (22 | %) | ||||||||
Restructuring costs (4) | 0 | % | 5 | % | 1 | % | 3 | % | ||||||||
Non-GAAP operating margin | (28 | %) | (25 | %) | 14 | % | (20 | %) | ||||||||
GAAP Basic EPS | $ | (0.07 | ) | $ | 0.02 | $ | 0.05 | $ | (0.04 | ) | ||||||
Non-cash stock option expense, net of income taxes (2) | 0.01 | 0.01 | 0.02 | 0.02 | ||||||||||||
Legal related (benefits) costs (3) | 0.00 | (0.11 | ) | 0.00 | (0.11 | ) | ||||||||||
Restructuring costs (4) | 0.00 | 0.01 | 0.00 | 0.02 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (5) | 0.01 | 0.01 | 0.02 | 0.01 | ||||||||||||
Non-GAAP Basic EPS | $ | (0.05 | ) | $ | (0.06 | ) | $ | 0.09 | $ | (0.10 | ) | |||||
GAAP Diluted EPS | $ | (0.07 | ) | $ | 0.02 | $ | 0.05 | $ | (0.04 | ) | ||||||
Non-cash stock option expense, net of income taxes (2) | 0.01 | 0.01 | 0.02 | 0.02 | ||||||||||||
Legal related (benefits) costs (3) | 0.00 | (0.11 | ) | 0.00 | (0.11 | ) | ||||||||||
Restructuring costs (4) | 0.00 | 0.01 | 0.00 | 0.02 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (5) | 0.01 | 0.01 | 0.02 | 0.01 | ||||||||||||
Non-GAAP Diluted EPS | $ | (0.05 | ) | $ | (0.06 | ) | $ | 0.08 | $ | (0.10 | ) | |||||
Weighted average basic shares outstanding (GAAP and as adjusted) | 40,964,160 | 47,919,318 | 40,949,849 | 47,975,217 | ||||||||||||
Weighted average diluted shares outstanding (GAAP and as adjusted) | 40,964,160 | 48,780,606 | 42,492,677 | 47,975,217 |
(1) | Represents non-cash, stock-based compensation charges as follows: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Cost of revenues - Product | $ | — | $ | — | $ | — | $ | — | ||||||||
Cost of revenues - Support and Service | 34,894 | 32,454 | 53,704 | 54,337 | ||||||||||||
Research and development costs | 98,495 | 86,608 | 171,515 | 175,407 | ||||||||||||
Selling and marketing | 63,510 | 50,787 | 151,580 | 212,974 | ||||||||||||
General and administrative | 229,069 | 252,205 | 423,975 | 391,997 | ||||||||||||
Total non-cash stock based compensation expense | $ | 425,968 | $ | 422,054 | $ | 800,774 | $ | 834,715 |
(2) | Represents the effects of non-cash stock-based compensation expense recognized in accordance with the FASB Accounting Standards Codification, Topic 718, net of related income tax effects. For the three and six months ended June 30, 2015 and 2014, the tax expense for both GAAP and Non-GAAP basis approximate the same amount. |
(3) | Legal related costs represent expenses/gains in connection with the Company’s investigations, litigation and settlement related costs for each respective period presented. |
(4) | Represents restructuring costs which were incurred during each respective period presented. |
(5) | Represents the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock and accrual of Series A redeemable convertible preferred stock dividends. |
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