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FalconStor Extends IBM Power Cyber Resilience Strategy as Subscription Growth Continues
Second quarter FY2026 results reinforce recurring revenue momentum while Cloud Clean Room expands recovery validation for IBM Power environments.
08/06/2026
By the Numbers
- Total revenue: $2.6 million, up 27% year over year
- Hybrid Cloud ARR run-rate: Up 91% trailing twelve months, following 89% in Q1 2026 and 61% at year-end 2025
- Total operating expenses: $2.4 million, compared to $2.2 million a year earlier
- Q2 2026 GAAP net loss: $(0.3) million, compared to $(0.5) million a year earlier
- Q2 2026 non-GAAP EBITDA: $(0.2) million, compared to $(0.5) million a year earlier
- First-half 2026 GAAP net income: $798,828, compared to a net loss of $466,135 in first-half 2025
- Ending cash: $1.9 million, compared to $2.9 million in Q2 2025
Key Highlights
- Hybrid Cloud ARR expansion reached 91% after moving from 61% at year-end 2025 to 89% in the first quarter, a sequence that raises the question of whether base effects or installed base conversion limits govern the trajectory.
- Cloud Clean Room carries FalconStor into recovery validation, built on patent-pending Zero Trust Secure Enclave technology and extending the Habanero platform for IBM Power customers.
- IBM completed the Power11 lineup in July 2026 with the entry-class Power S1112 and a concurrent set of IBM i Technology Refreshes, opening evaluation windows in the same accounts where Cloud Clean Room applies.
- First-half profitability rests on the March quarter, with the June quarter returning a GAAP net loss and negative non-GAAP EBITDA against a declining cash balance.
The News
FalconStor Software (OTCMarkets: FALC) reported second quarter 2026 results that continue the company's transition toward recurring subscription and consumption-based revenue. CEO Todd Brooks described the quarter as FalconStor's third consecutive period of double-digit revenue growth and traced Hybrid Cloud ARR run-rate expansion across three reporting periods. The company launched Cloud Clean Room during the quarter, built on patent-pending Zero Trust Secure Enclave (ZTSE) technology and positioned as an extension of the Habanero platform into audit-ready recovery validation for IBM Power customers. For more information, read the company's official earnings press release.
Analyst Take
The ARR sequence tells a story the headline number leaves out. FalconStor grew Hybrid Cloud ARR run-rate 61% at the end of 2025, 89% in the first quarter, and 91% in the second. The first move added 28 points. The second added 2. Part of that flattening is arithmetic, because every quarter of subscription conversions makes the base larger and a larger base makes big percentage gains harder to repeat. The rest depends on how many customers are left to convert. FalconStor sells into IBM Power and IBM i shops, a countable set of accounts, and a growth rate that levels off can mean the easiest conversions are already behind the company. In our opinion, that difference sets up FY27, and the next two quarters will show where the momentum is coming from.
Quarterly revenue of $2.6 million places FalconStor near a $10 million annual run rate as an OTC-traded company. Growth of 27% adds roughly $500,000 of quarterly revenue. Operating expenses over the same period grew approximately $200,000, absorbing about 40% of the incremental revenue. CFO Vincent Sita's emphasis on operating leverage finds partial support in that ratio, and the remaining 60% flow-through explains the year-over-year improvement in both EBITDA and GAAP loss.
The $798,828 profitability figure covers six months. The June quarter contributed a GAAP net loss of $(0.3) million, which places roughly $1.1 million of net income in the March quarter. FalconStor achieved a profitable half-year on the strength of a single quarter, and both the GAAP and non-GAAP EBITDA lines returned to negative territory in Q2. The company remains pre-profitability on a run-rate basis.
Enterprise cyber resilience investment is moving toward recovery validation. HyperFRAME Research Lens: State of the Enterprise Infrastructure and Operations (1H 2026) found that 91% of organizations identify cyber resilience as a strategic priority, while only 30% report high confidence in their recovery speed following a cyberattack or cloud-based data loss event. The gap between stated priority and recovery confidence defines the market Cloud Clean Room addresses. FalconStor states that ZTSE delivers isolated environments for validating IBM Power recovery with audit-ready evidence, reducing the infrastructure commitment associated with dedicated clean room builds. In our opinion, the IBM Power specificity operates as both the differentiator and the ceiling. Mainstream cyber resilience vendors have concentrated clean room capability on x86 and cloud-native estates, which leaves FalconStor a defensible position in Power and IBM i environments and a correspondingly bounded addressable market.
FalconStor has held a consistent position across multiple product cycles and analyst briefings. Customers want stronger cyber resilience and want to preserve existing operational investments. Some organizations are modernizing tape environments, others are extending recovery into cloud targets, and others are evaluating enclave technologies as part of recovery assurance. The company has built its portfolio around incremental adoption paths that leave existing infrastructure and operational processes in place.
IBM's Power11 cycle gives that position a fresh entry point, and this reading belongs to HyperFRAME Research. The earnings release makes no reference to Power11. IBM closed out the family in July 2026 with the Power S1112, the P05-tier entry machine that IBM i shops had waited on since the July 2025 launch of the rest of the lineup, and paired it with IBM i Technology Refreshes. Entry and small-midsize IBM i accounts now have a refresh trigger, and refresh cycles open evaluation windows across backup architecture, cyber recovery planning, and business continuity. FalconStor has supported IBM Power environments for decades and holds PowerVS certification, which positions the company to participate as those evaluations begin.
FalconStor ended the quarter with $1.9 million against $2.9 million a year earlier, a decline of roughly 34%, while maintaining preferred dividend payments and posting a GAAP loss for the quarter. Cloud Clean Room requires sales motion investment and partner enablement in a market where larger cyber resilience vendors bundle comparable capability. In our opinion, the company has limited capacity to fund portfolio expansion and absorb a slower ARR conversion cycle at the same time, and a second consecutive quarter of flat ARR expansion would leave it with less room to do either.
What Was Announced
FalconStor announced second quarter 2026 financial results consisting of total revenue of $2.6 million against $2.1 million a year earlier, a 91% trailing twelve-month increase in Hybrid Cloud ARR run-rate, total operating expenses of $2.4 million, non-GAAP EBITDA of $(0.2) million, and a GAAP net loss of $(0.3) million. First-half 2026 GAAP net income was $798,828, compared to a net loss of $466,135 in the first half of 2025. Ending cash was $1.9 million, compared to $2.9 million in the second quarter of 2025. CFO Vincent Sita noted the third consecutive quarter of preferred stock dividend payments and pointed to subsidiary rationalization and resource alignment as sources of operating discipline.
The company also announced the launch of Cloud Clean Room, built on patent-pending Zero Trust Secure Enclave technology and running on IBM PowerVS. FalconStor describes the offering as a standalone infrastructure layer, available today as an add-on to Habanero and licensable by ISVs and service providers that want to embed on-demand recovery validation in their own managed services. The company states that licensing discussions with multiple ISVs are underway.
Looking Ahead
FalconStor enters the second half of 2026 with revenue growth established across three quarters and a subscription base that continues to expand. The transition to recurring revenue has produced measurable improvement in EBITDA and GAAP results year over year. Converting that improvement into sustained quarterly profitability remains the operating requirement, and cash position gives the company a defined window in which to accomplish it.
Cloud Clean Room gives FalconStor a differentiated entry into recovery validation for a customer base that mainstream cyber resilience vendors address indirectly. Commercial traction for the offering will show up first in Hybrid Cloud ARR composition and second in average deal size, and the completed Power11 lineup offers a channel for both.
Habanero sits at the center of how the subscription base grows from here. The service is consumed as a managed subscription for offsite vaulting and cyber recovery across IBM i, IBM Power, and tape environments, so every account carries recurring revenue for as long as the customer retains it. Cloud Clean Room sells as an add-on to that service, which gives each Habanero account a second subscription layer available on the same relationship. ISVs and service providers can license Cloud Clean Room and Habanero to deliver validated recovery as a managed offering, adding a distribution route that reaches customers FalconStor does not sell to directly. In our opinion, those consumption mechanics point to where Hybrid Cloud ARR expands from here, through new Habanero accounts, attach into the installed base, and partner-delivered services.
We will be watching the Hybrid Cloud ARR expansion rate for evidence that separates base effects from installed base saturation, Habanero adoption and Cloud Clean Room attach against that base, progress toward sustained positive operating cash flow against a declining cash balance, and FalconStor's ability to convert IBM Power11 modernization activity into cyber resilience engagements.
Don Gentile | Analyst-in-Residence -- Storage & Data Resiliency
Don Gentile brings three decades of experience turning complex enterprise technologies into clear, differentiated narratives that drive competitive relevance and market leadership. He has helped shape iconic infrastructure platforms including IBM z16 and z17 mainframes, HPE ProLiant servers, and HPE GreenLake — guiding strategies that connect technology innovation with customer needs and fast-moving market dynamics.
His current focus spans flash storage, storage area networking, hyperconverged infrastructure (HCI), software-defined storage (SDS), hybrid cloud storage, Ceph/open source, cyber resiliency, and emerging models for integrating AI workloads across storage and compute. By applying deep knowledge of infrastructure technologies with proven skills in positioning, content strategy, and thought leadership, Don helps vendors sharpen their story, differentiate their offerings, and achieve stronger competitive standing across business, media, and technical audiences.