Exhibit 99.1
Contacts: Herman Chin, Public Relations Christine Rogers, Investor Relations
631-962-1163 631-962-1160
HERMAN.CHIN@FALCONSTOR.COM CHRISTINE.ROGERS@FALCONSTOR.COM
FALCONSTOR SOFTWARE ANNOUNCES Q3 QUARTERLY RESULTS
SIGNS OEM AGREEMENT WITH TIER 1 INDUSTRY PARTNER
REVENUES INCREASE 83% FROM SAME PERIOD A YEAR AGO
MELVILLE, N.Y., October 21, 2004--FalconStor Software, Inc. (Nasdaq: FALC), a
leading developer of network storage infrastructure software solutions, today
announced financial results for its third quarter ended September 30, 2004.
Revenues for the third quarter of 2004 increased 83% to $7.5 million, compared
with $4.1 million for the same period a year ago. GAAP net loss for the third
quarter was $2.3 million, or $0.05 per share, compared with $1.9 million, or
$0.04 per share, for the same period a year ago. Non-GAAP net loss for the third
quarter of 2004 decreased to $0.6 million, or $0.01 per share. Non-GAAP results
exclude a litigation settlement charge of $1.3 million and legal fees of $0.4
million, each associated with patent infringement litigation that was resolved
in the third quarter of 2004.
Revenues for the third quarter increased 15% from $6.5 million in the second
quarter to $7.5 million. GAAP net loss for the quarter was $2.3 million, or
$0.05 per share, compared with $1.7 million, or $0.04 per share, in the previous
quarter. Non-GAAP net loss for the third quarter decreased to $0.6 million, or
$0.01 per share compared to non-GAAP net loss of $1.1 million or $0.02 per share
in the previous quarter. Non-GAAP results for the previous quarter exclude $0.6
million in legal fees associated with patent infringement litigation.
For the first nine months of 2004, revenues increased 62% to $19.2 million,
compared with $11.9 million for the same period a year earlier. GAAP net loss
for the nine month period was $6.2 million, or $0.13 per share, compared with a
net loss of $5.2 million, or $0.11 per share, reported in the corresponding
period a year ago. Non-GAAP net loss for the first nine months of 2004 was $3.9
million, or $0.08 per share. Non-GAAP results exclude a litigation settlement
charge of $1.3 million and legal fees of $1 million, each associated with patent
infringement litigation that was resolved in the third quarter of 2004.
The Company closed the quarter financially strong with $32.9 million in cash,
cash equivalents and marketable securities, a decrease of $1.8 million from the
previous quarter, of which $1.3 million was related to the patent infringement
litigation settlement. Deferred revenue at September 30, 2004, increased by $2.2
million, or 107%, compared with the same period a year ago and by $0.3 million,
or 7%, compared with the balance at June 30, 2004. Gross margins for the third
quarter of 2004 increased to 80% compared with 76% in the same period a year ago
and 78% in the second quarter of 2004.
The Company is expecting to be profitable for the fourth quarter of 2004 but not
on a full-year basis. The Company expects revenue for the full year 2004 will be
in excess of $28 million.
"Due to a number of factors, including a delay in the release of a product by an
OEM with whom we entered into an agreement in the third quarter of 2003, our
full year revenue target will be below our original projections." said ReiJane
Huai, Chairman and CEO, FalconStor Software, Inc. "However, we are very pleased
with the progress we have made in signing new Tier 1 OEM agreements this year.
We believe these new agreements will result in future revenue growth."
During the third quarter, a major US-based high tech company with worldwide
distribution and service capabilities began offering a private labeled version
of the "iSCSI Server for WSS2003 powered by IPStor(R)."
"We are pleased to announce the offering of our iSCSI solution by a major
US-based high-tech company. We anticipate that the strategic recognition of
FalconStor's strength in business continuity/disaster recovery, VTL and iSCSI by
Tier-1 industry partners will result in the enrollment of additional OEM and
channel partners to expand our worldwide market coverage, and will accelerate
top line revenue growth," said Mr. Huai.
ADDITIONAL THIRD QUARTER HIGHLIGHTS:
In addition to the new OEM offering, highlights of the third quarter include new
and continuing business relationships, customers, products, and further
interoperability certifications with leading industry solutions:
o Channel-related announcements during the quarter included new and expanded
agreements with D2B Informatique, eSeSIX Computer GmbH, Evesham Technology,
and Taiwan's Industrial Technology Research Institute.
o Premier solution and service providers teamed with FalconStor on new domestic
and international business for IPStor Enterprise Edition, VirtualTape Library
Appliance, and iSCSI Storage Server across many industries, including legal,
education, financial, and commercial real estate. Customer wins in the past
quarter included Hartz Mountain Industries, Inc., Stadtsparkasse Munchen,
Thompson Hine LLP, and Texas Tech University.
o FalconStor delivered the next generation of its IPStor Enterprise Edition
software solution, addressing compliance and information lifecycle
management, as well as the next generation of its VirtualTape Library
solution. The Company also announced IPStor support for Intel XScale
Technology to help SMB/SOHO storage manufacturers create cost-effective
network storage solutions. FalconStor also rolled out Network Storage Server
(NSS) Appliances, powered by IPStor, a line of turnkey, self-contained
(software, plus server including integrated disk array) solutions for
intelligent backup and rapid recovery services, available through selected
solution integrators on a global basis.
o Storage Pipeline praised FalconStor's VirtualTape Library solution during its
review of several VTL appliance vendors. Howard Marks, in Storage Pipeline,
said, "After spending a few months with these VTLs, it was no surprise that
three of our vendors had chosen FalconStor's IPStor VirtualTape Library to
power their appliances. Powerful, flexible and easy to use, FalconStor has
hit a home run."
o FalconStor's iSCSI Storage Server was also honored as Best of TechEd Europe
2004 in the Data Management Solution category, and as Best of TechEd China
2004 in the Software Solution category.
2
o FalconStor's VirtualTape Library Appliance completed interoperability testing
under IBM's TotalStorage Proven Program, as well as being certified with
Engenio Information Technologies. The iSCSI Storage Server achieved Novell's
"YES CERTIFIED" status for NetWare 6.5, and IPStor Enterprise Edition
completed certification with LSI Logic Pci-X Fibre Channel HBAs.
The company will host a conference call on Thursday, October 21, 2004 at 4:30 PM
ET to discuss the results. To participate in the call, dial 1-800-240-4186 in
the United States or 303-262-2175 outside the United States. To view the
synchronized slide presentation during the call, visit:
HTTP://FALCONSTOR.WEBEX.COM.
Meeting Name: FalconStor Q3 Earnings
Meeting password: falcon
Meeting number: 761131564
To listen to a replay of the call beginning October 21 at 6:30 PM ET, dial
1-800-405-2236 in the United States or 303-590-3000 outside the United States,
passcode 11011605#, or visit WWW.FALCONSTOR.COM/INVESTORS.ASP.
ABOUT IPSTOR(R)
IPStor software delivers an intelligent SAN/NAS infrastructure across
heterogeneous environments by providing a comprehensive set of storage services
for enterprise applications - simplifying management, ensuring data availability
and recoverability, and maximizing performance.
ABOUT FALCONSTOR
FalconStor Software, Inc. (Nasdaq: FALC) is a leading developer of network
storage infrastructure software solutions designed to optimize the performance
and availability of today's complex IT infrastructures. Deployed by a wide range
of Fortune 1000 enterprises, FalconStor's flagship product, IPStor, optimizes
storage utilization, accelerates backup and recovery, maximizes I/O performance
and ensures business continuity via sophisticated data replication services. It
is available and supported through major OEMs, system integrators and resellers
worldwide.
Founded in 2000, FalconStor is headquartered in Melville, NY, with offices
throughout Europe and the Asia Pacific regions including Paris, Tokyo and
Taiwan. FalconStor is an active member of the Technical Support Alliance Network
(TSANet), Storage Networking Industry Association (SNIA) and Fibre Channel
Industry Association (FCIA). For more information visit www.falconstor.com or
call 1-631-777-5188.
This press release includes forward-looking statements that involve risk and
uncertainties that could cause actual results to differ materially from the
forward-looking statements. These risks and uncertainties include: delays in
product development; market acceptance of FalconStor's products and services;
technological change in the storage and networking industries; competition in
the storage networking software market; the potential failure of FalconStor's
OEM partners to introduce or to market products incorporating FalconStor's
products; intellectual property issues; and other risk factors discussed in
FalconStor's reports on Forms 10-K, 10-Q and other reports filed with the
Securities and Exchange Commission.
FalconStor and IPStor are registered trademarks of FalconStor Software, Inc. All
other company and product names contained herein are trademarks of the
respective holders.
3
RECONCILIATION OF GAAP TO NON-GAAP
Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
GAAP net loss .................................... $(2,293,083) $(6,227,681)
GAAP basic and diluted net
loss per share ....................... $ (0.05) $ (0.13)
Litigation settlement charge ..................... $ 1,300,000 $ 1,300,000
Legal fees associated with patent litigation ..... $ 400,000 $ 1,000,000
----------- -----------
Non-GAAP net loss ................................ $ (593,083) $(3,927,681)
Non-GAAP basic and diluted net
loss per share ....................... $ (0.01) $ (0.08)
NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures used in this press release are not prepared in
accordance with generally accepted accounting principles and may be different
from non-GAAP financial measures used by other companies. The Company's
management refers to these non-GAAP financial measures in making operating
decisions because they provide meaningful supplemental information regarding the
Company's operating performance. In addition, these non-GAAP financial measures
facilitate management's internal comparisons to the Company's historical
operating results and comparisons to competitors' operating results. We include
these non-GAAP financial measures in this press release because we believe they
are useful to investors in allowing for greater transparency to supplemental
information used by management in its financial and operational decision-making.
###
4
FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
---------------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................................. $13,909,687 $ 8,486,144
Marketable securities ...................................... 18,994,701 28,199,242
Accounts receivable, net ................................... 8,716,928 7,109,922
Prepaid expenses and other current assets .................. 1,010,832 1,273,125
----------- -----------
Total current assets .............................. 42,632,148 45,068,433
----------- -----------
Property and equipment, net ................................... 4,209,593 3,861,069
Goodwill ...................................................... 3,512,796 3,366,642
Other intangible assets, net .................................. 335,595 396,940
Other assets .................................................. 2,709,550 3,799,949
----------- -----------
Total assets ...................................... $53,399,682 $56,493,033
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 1,077,692 $ 562,305
Accrued expenses ........................................... 3,268,372 2,777,391
Deferred revenue ........................................... 2,850,656 2,202,179
----------- -----------
Total current liabilities ......................... 7,196,720 5,541,875
Deferred revenue .............................................. 1,364,003 395,609
----------- -----------
Total liabilities ................................. 8,560,723 5,937,484
----------- -----------
Commitments
Total stockholders' equity ........................ 44,838,959 50,555,549
----------- -----------
Total liabilities and stockholders' equity ........ $53,399,682 $56,493,033
=========== ===========
5
FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30,
----------------------------
2004 2003 2004 2003
Revenues
Software license revenue ........................................... $ 5,430,010 $ 2,878,448 $ 13,893,339 $ 8,589,186
Maintenance revenue ................................................ 1,332,179 663,951 3,197,234 1,710,999
Software services and other revenue ................................ 707,810 540,218 2,121,361 1,552,216
------------ ------------ ------------ ------------
7,469,999 4,082,617 19,211,934 11,852,401
Operating expenses:
Amortization of purchased and capitalized software .............. 347,027 358,798 1,171,325 981,337
Cost of maintenance, software services and other revenue ........ 1,112,662 620,359 3,080,622 1,804,015
Software development costs ...................................... 2,271,437 1,821,442 6,612,280 5,105,196
Selling and marketing ........................................... 3,532,531 2,706,326 10,247,147 7,893,247
General and administrative ...................................... 1,358,833 736,774 3,566,885 2,127,593
------------ ------------ ------------ ------------
8,622,490 6,243,699 24,678,259 17,911,388
------------ ------------ ------------ ------------
Operating loss .......................................... (1,152,491) (2,161,082) (5,466,325) (6,058,987)
------------ ------------ ------------ ------------
Litigation settlement .............................................. (1,300,000) -- (1,300,000) --
Interest and other income .......................................... 162,146 270,075 553,923 867,914
------------ ------------ ------------ ------------
Loss before income taxes .................................. (2,290,345) (1,891,007) (6,212,402) (5,191,073)
------------ ------------ ------------ ------------
Provision for income taxes ......................................... 2,738 3,191 15,279 20,903
------------ ------------ ------------ ------------
Net loss .................................................. $ (2,293,083) $ (1,894,198) $ (6,227,681) $ (5,211,976)
============ ============ ============ ============
Basic and diluted net loss per share ............................... $ (0.05) $ (0.04) $ (0.13) $ (0.11)
Weighted average basic and diluted shares outstanding............... 47,054,294 46,134,816 46,852,779 45,830,216
============ ============ ============ ============
6
FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30,
----------------------------
2004 2003 2004 2003
Revenues
Software license revenue .............................. $ 5,430,010 $ 2,878,448 $ 13,893,339 $ 8,589,186
Maintenance revenue ................................... 1,332,179 663,951 3,197,234 1,710,999
Software services and other revenue ................... 707,810 540,218 2,121,361 1,552,216
------------ ------------ ------------ ------------
7,469,999 4,082,617 19,211,934 11,852,401
Operating expenses:
Amortization of purchased and capitalized software . 347,027 358,798 1,171,325 981,337
Cost of maintenance, software services
and other revenue .................................. 1,112,662 620,359 3,080,622 1,804,015
Software development costs ......................... 2,271,437 1,821,442 6,612,280 5,105,196
Selling and marketing .............................. 3,532,531 2,706,326 10,247,147 7,893,247
General and administrative ......................... 958,833 736,774 2,566,885 2,127,593
------------ ------------ ------------ ------------
8,222,490 6,243,699 23,678,259 17,911,388
------------ ------------ ------------ ------------
Non-GAAP Operating loss .................... (752,491) (2,161,082) (4,466,325) (6,058,987)
------------ ------------ ------------ ------------
Interest and other income ............................. 162,146 270,075 553,923 867,914
------------ ------------ ------------ ------------
Non-GAAP loss before income taxes
(590,345) (1,891,007) (3,912,402) (5,191,073)
------------ ------------ ------------ ------------
Provision for income taxes ............................ 2,738 3,191 15,279 20,903
------------ ------------ ------------ ------------
Non-GAAP net loss ............................ $ (593,083) $ (1,894,198) $ (3,927,681) $ (5,211,976)
============ ============ ============ ============
Non-GAAP Basic and diluted net loss per share ......... $ (0.01) $ (0.04) $ (0.08) $ (0.11)
============ ============ ============ ============
Weighted average basic and diluted shares outstanding . 47,054,294 46,134,816 46,852,779 45,830,216
============ ============ ============ ============
RECONCILIATION OF GAAP TO NON-GAAP:
- ----------------------------------
Non-GAAP net loss ...................................... $ (593,083) (1,894,198) (3,927,681) $(5,211,976)
=========== ============= ==-========= ========-===
Non-GAAP basic and diluted net loss per share .......... $ (0.01) $ (0.04) $ (0.08) $ (0.11)
=========== ============= =====-====== =========-==
Litigation settlement .................................. 1,300,000 -- 1,300,000 --
Legal fees associated with patent litigation ........... 400,000 -- 1,000,000 --
----------- ------------ ------------ ------------
GAAP net loss .......................................... $(2,293,083) $ (1,894,198) $ (6,227,681) $(5,211,976)
=========== ============= ===-======== ===-========
GAAP basic and diluted net loss per share
$ (0.05) $ (0.04) $ (0.13) $ (0.11)
=========== ============= ==========-= ====-=======
7
