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Is FalconStor a Phoenix Rising - Q3 Financials Suggest that might be so

FalconStor Q3 FY2017 financials indicate the new CEO is delivering against his promises.

When we interviewed Todd Brooks recently, it was clear he was coming in to steady the ship and then build from there. 

The latest Q3 2017 financials show exactly that. It is true that revenue is still declining, but Todd's first task was get real underlying stability to set a foundation for future investment and growth.

No doubt the challenge ifor FalconStor s a massive one, the software defined storage space is hard to crack. It involves getting storage administrators to change how they think about managing and consuming storage, thats something that is not easy to do.

However FalconStor have some massive plusses in their back pocket that give them a better chance than most to make progress in this space.

  • They have a solid track record of creating and delivering world class products and technology in the storage and data protection space.

  • They have a large a loyal customer base that value the relationship - this is particulary true in Asia.

  • They have deep partnerships in the APJ region built on trust oer many years, and this level of commitment counts for a lot in this region.

The next step for FalconStor is absolutely critical, under the new management they have "steadied the ship" and stopped the run quarterly losses, now comes the big ask can they tur the corner on sales and start to drive up revenues?

Its not an easy task in a crowded and innovative landscape. However given the strong financial accumin that is being applied to the business combined with the years of goodwill they have in the bank with partners and customers alike - we believe that FalconStor is positioning well for the next stage of their turn around.

At DSA, we are impressed with the local management team and we feel confident they are finally being provided a platform on which to rebuild.

The full Falconstor Press Release follows:

November 20, 2017 — FalconStor Software, Inc. (OTCQB: FALC), a market leader in storage software, today announced financial results for its third quarter ended September 30, 2017.

"Q3 marks an important pivot point for FalconStor as the strategic restructuring launched earlier in 2017, and additional focus implemented during the quarter, have produced a return to profitability" stated Todd Brooks, CEO of FalconStor. "Our products and solutions play a key role in managing and protecting critical data within enterprises around the world. The financial stability we are creating will enable us to continue innovating and delivering outstanding value to our existing partners and customers, while positioning the company for future growth."

Financial Overview:

For the three months ended September 30, 2017 we delivered net GAAP operating income of $1.3 million on revenues of $6.1 million.  Included in operating results above for the three months ended September 30, 2017 and 2016 were $(0.3) million and $0.3 million of share-based compensation expense, respectively, and $0.2 million and $0.4 million of severance expense, respectively. 

For the nine months ended September 30, 2017 we have incurred a GAAP net operating loss of $.4 million as compared to a net loss of $9.7 million for the same period last year.  Included in operating results above for the nine months ended September 30, 2017 and 2016 were $0.3 million and $2.4 million of share-based compensation expense, respectively, and $1.0 million and $1.4 million of severance expense, respectively. Included in net loss for the nine months ended September 30, 2017 and 2016 was an income tax provision of $0.2 million and $0.4 million, respectively. Due to cost rationalization initiatives completed during 2016 and continued into 2017 we reduced our net loss by (97)% for the nine months ended September 30, 2017 as compared to the prior year period.

Deferred revenue at September 30, 2017 was $18.8 million, compared with $23.7 million at December 31, 2016. Our cash balance at September 30, 2017 was $1.8 million, compared with $3.4 million at December 31, 2016.

  • In June 2017, our Board of Directors, approved a comprehensive plan to increase operating performance (the “2017 Plan”).  The 2017 Plan will result in a realignment and reduction in workforce and a change in the leadership of the Company. The 2017 Plan is substantially complete and we ended the quarter with 83 employees worldwide. These actions are anticipated to result in an annualized cost savings of approximately $10.0 million. In connection with the 2017 Plan, we have incurred year to date severance expense of $1.0 million which is included in operating expenses.  In making these changes, we prioritized customer support and development while consolidating operations and cutting direct sales resources, therefore allowing us to focus on our install base and develop more efficient market channels.
  • During 2017, we continued to innovate and further enhance our products.

 

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