Exhibit 99.1
FALCONSTOR
SOFTWARE
Contacts: Christine Rogers, Investor Relations
631-962-1160
christine.rogers@falconstor.com
FALCONSTOR SOFTWARE ANNOUNCES Q2 QUARTERLY RESULTS
REVENUES INCREASE 33% FROM PRIOR YEAR AND 38% FROM PREVIOUS QUARTER
MELVILLE, N.Y., July 27, 2006--FalconStor Software, Inc. (NASDAQ: FALC), the
leading developer of proven data protection solutions, today announced financial
results for its second quarter ended June 30, 2006.
Revenues for the second quarter of 2006 increased 33% to $12.7 million, compared
with $9.5 million for the same period a year ago. Net loss for the quarter was
$1.3 million or $0.03 per share, which includes $2.4 million in expenses related
to employee stock options. Pro forma net income for the second quarter of 2006,
excluding employee stock option expense, was $1.1 million or $0.02 per share,
compared with net income of $0.3 million or $0.01 per share for the second
quarter of 2005.
For the six months ended June 30, 2006, revenues increased 22% to $21.9 million,
compared with $17.9 million for the same period a year ago. Net loss for the six
month period was $4.9 million or $0.10 per share, which includes $4.7 million in
expenses related to employee stock options. Pro forma net loss for the six month
period, excluding employee stock option expense, was $0.3 million or $0.01 per
share, compared with net income of $0.2 million and breakeven earnings per share
for the same period a year ago.
Compared with the previous quarter, revenues increased 38% from $9.2 million in
the first quarter of 2006 to $12.7 million in the second quarter of 2006. Net
loss for the second quarter was $1.3 million or $0.03 per share, which includes
$2.4 million in expenses related to employee stock options, compared with a net
loss of $3.6 million or $0.08 per share in the first quarter, which includes
$2.3 million in expenses related to employee stock options. Excluding employee
stock option expenses, pro forma net income increased to $1.1 million or $0.02
per share in the second quarter of 2006 compared with a pro forma net loss of
$1.4 million or $0.03 per share in the first quarter of 2006.
The Company closed the quarter with $39.5 million in cash, cash equivalents and
marketable securities and recorded its seventh consecutive quarter of positive
cash flows from operations. During the second quarter of 2006, the Company
repurchased 250,000 shares of Common Stock for a total cost of $1.7 million.
Deferred revenue at June 30, 2006, increased to $11.1 million, or by 10%,
compared with the previous quarter, and by 61% compared with the same period a
year ago.
"We are pleased with our Q2 business performance and the adoption of our
technology by strategic partners around the world." said ReiJane Huai, Chairman
and CEO of FalconStor. "We are confident about our product's competitive
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position and our ability to leverage partnerships to expand market coverage and
channel distribution to realize the growth potential ahead of us."
The company will host a conference call on Thursday, July 27th at 4:30 p.m. EDT,
to discuss the results. To participate in the conference call, please dial:
Toll Free: 866-249-5225
International: 303-262-2142
To view the presentation, please copy and paste the following link into your
browser and register for this meeting. Once you have registered for the meeting,
you will receive an email message confirming your registration.
https://falconstor.webex.com/falconstor/j.php?ED=91244992&RG=1
Meeting Name: FalconStor Q2 2006 Earnings
Meeting password: q2numbers
Meeting Number: 489 898 710
A conference call replay will be available beginning 7/27 at 6:30 PM EDT through
6:30 PM on 7/29. To listen to the replay of the call, dial toll free:
800-405-2236 or International: 303-590-3000, pass code: 11066186#, or visit our
website at www.falconstor.com/investors.asp.
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 (which should be viewed as a supplement to,
and not a substitute for, their comparable GAAP 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. For a reconciliation of our GAAP and non-GAAP
financial results, please refer to our ProForma Condensed Consolidated
Statements of Operations, presented in this release.
ABOUT FALCONSTOR
FalconStor Software, Inc. (NASDAQ: FALC) is the premier developer of adaptive
data protection solutions that optimize data center efficiency and business
continuity for all IT infrastructures. The company's innovative storage
virtualization, continuous data protection (CDP), disaster recovery, and virtual
tape library (VTL) solutions integrate seamlessly to ensure rapid data recovery
and simplified storage management. Available from major OEMs, system
integrators, and resellers, FalconStor products -- including award-winning
IPStor(R), VirtualTape Library, and DiskSafe(TM) software -- are deployed
worldwide by governments, educational institutions, and Fortune 1000 enterprises
across industries including aerospace, energy production, financial services,
healthcare, law, manufacturing, and telecommunications.
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FalconStor is headquartered in Melville, New York, with offices throughout
Europe and the Asia Pacific region. FalconStor is an active member of the
Storage Networking Industry Association (SNIA). For more information, visit
www.falconstor.com or call 1-866-NOW-FALC (866-669-3252).
###
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 network storage 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.
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FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2006 2005
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ...................... $13,911,480 $18,796,973
Marketable securities .......................... 25,617,872 17,833,683
Accounts receivable, net ....................... 12,736,058 15,187,408
Prepaid expenses and other current assets ...... 1,005,426 911,715
----------- -----------
Total current assets ....................... 53,270,836 52,729,779
----------- -----------
Property and equipment, net ....................... 5,514,362 5,277,609
Goodwill .......................................... 3,512,796 3,512,796
Other intangible assets, net ...................... 247,749 216,864
Other assets ...................................... 2,295,030 2,236,725
----------- -----------
Total assets ............................... $64,840,773 $63,973,773
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 1,136,086 $ 1,152,228
Accrued expenses ................................ 4,699,914 4,522,212
Deferred revenue ................................ 8,042,134 7,401,018
----------- -----------
Total current liabilities .................. 13,878,134 13,075,458
Deferred revenue .................................. 3,060,802 2,240,208
----------- -----------
Total liabilities .......................... 16,938,936 15,315,666
----------- -----------
Commitments
Total stockholders' equity ................. 47,901,837 48,658,107
----------- -----------
Total liabilities and stockholders' equity.. $64,840,773 $63,973,773
=========== ===========
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FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
2006 2005 2006 2005
(unaudited) (unaudited)
Revenues
Software license revenue ............................ $ 8,726,021 $ 6,650,442 $ 14,402,710 $ 12,932,951
Maintenance revenue ................................. 2,908,514 1,791,267 5,499,517 3,321,441
Software services and other revenue ................. 1,033,692 1,053,878 1,974,320 1,633,231
------------ ------------ ------------ ------------
12,668,227 9,495,587 21,876,547 17,887,623
Operating expenses:
Amortization of purchased and capitalized
software ....................................... 101,333 193,417 253,055 416,000
Cost of maintenance, software services
and other revenue .............................. 2,320,065 1,468,866 4,304,662 2,796,083
Software development costs ........................ 4,905,137 2,763,745 9,512,240 5,431,136
Selling and marketing ............................. 5,686,742 3,979,124 10,590,747 7,484,343
General and administrative ........................ 1,390,140 1,031,285 2,711,434 2,017,311
------------ ------------ ------------ ------------
14,403,417 9,436,437 27,372,138 18,144,873
------------ ------------ ------------ ------------
Operating income (loss) .................. (1,735,190) 59,150 (5,495,591) (257,250)
------------ ------------ ------------ ------------
Interest and other income ......................... 384,009 236,909 670,660 423,495
------------ ------------ ------------ ------------
Income (loss) before income taxes ......... (1,351,181) 296,059 (4,824,931) 166,245
------------ ------------ ------------ ------------
Provision for income taxes .......................... (46,386) 7,954 116,750 11,969
------------ ------------ ------------ ------------
Net income (loss) ............................ $ (1,304,795) $ 288,105 $ (4,941,681) $ 154,276
============ ============ ============ ============
Basic net income (loss) per share ................... $ (0.03) $ 0.01 $ (0.10) $ 0.00
============ ============ ============ ============
Diluted net income (loss) per share ................. $ (0.03) $ 0.01 $ (0.10) $ 0.00
============ ============ ============ ============
Weighted average basic shares outstanding ........... 48,047,291 47,594,072 48,026,914 47,561,653
============ ============ ============ ============
Weighted average diluted shares outstanding ......... 48,047,291 50,623,983 48,026,914 50,806,365
============ ============ ============ ============
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FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
GAAP RECONCILIATION
Adjustment to
Exclude Stock
GAAP Option Expense (1) Pro Forma (2)
---- ------------------ -------------
Revenues:
Software license revenue .......................................... $ 8,726,021 $ 8,726,021
Maintenance revenue ............................................... 2,908,514 2,908,514
Software services and other revenue ............................... 1,033,692 1,033,692
------------ ------------
12,668,227 12,668,227
------------ ------------
Operating expenses:
Amortization of purchased and capitalized software ................ 101,333 101,333
Cost of software services and other revenue ....................... 2,320,065 (356,159) 1,963,906
Software development costs ........................................ 4,905,137 (1,078,138) 3,826,999
Selling and marketing ............................................. 5,686,742 (684,686) 5,002,056
General and administrative ........................................ 1,390,140 (277,119) 1,113,021
------------ ------------ ------------
14,403,417 (2,396,102) 12,007,315
------------ ------------ ------------
Operating income (loss) ................................ (1,735,190) 2,396,102 660,912
------------ ------------ ------------
Interest and other income ......................................... 384,009 384,009
------------ ------------
Income (loss) before income taxes ................................. (1,351,181) 2,396,102 1,044,921
------------ ------------ ------------
Income taxes ...................................................... (46,386) (46,386)
------------ ------------
Net income (loss) ................................................. $ (1,304,795) $ 2,396,102 $ 1,091,307
============ ============ ============
Basic net income (loss) per share ................................. $ (0.03) $ 0.02
============ ============
Diluted net income (loss) per share ............................... $ (0.03) $ 0.02
============ ============
Weighted average basic shares outstanding ......................... 48,047,291 48,047,291
============ ============
Weighted average diluted shares outstanding ....................... 48,047,291 49,377,595
============ ============
(1) Represents the stock option expense associated with the adoption of FAS 123R.
(2) Pro forma amounts exclude stock option expenses recognized for GAAP purposes under FAS 123R. As discussed earlier in
this release, these supplemental non-GAAP financial measures should not be used as a substitute for their comparable
GAAP measures. The pro forma amounts exclude any tax related effects of FAS 123R as these effects are not deemed to be
material.
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FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
GAAP RECONCILIATION
Adjustment to
Exclude Stock
GAAP Option Expense (1) Pro Forma (2)
---- ------------------ -------------
Revenues:
Software license revenue ......................................... $ 14,402,710 $ 14,402,710
Maintenance revenue .............................................. 5,499,517 5,499,517
Software services and other revenue .............................. 1,974,320 1,974,320
------------ ------------
21,876,547 21,876,547
------------ ------------
Operating expenses:
Amortization of purchased and capitalized software ............... 253,055 253,055
Cost of software services and other revenue ...................... 4,304,662 (699,549) 3,605,113
Software development costs ....................................... 9,512,240 (2,133,099) 7,379,141
Selling and marketing ............................................ 10,590,747 (1,345,538) 9,245,209
General and administrative ....................................... 2,711,434 (482,436) 2,228,998
------------ ------------ ------------
27,372,138 (4,660,622) 22,711,516
------------ ------------ ------------
Operating loss ........................................ (5,495,591) 4,660,622 (834,969)
------------ ------------ ------------
Interest and other income ........................................ 670,660 670,660
------------ ------------
Loss before income taxes ......................................... (4,824,931) 4,660,622 (164,309)
------------ ------------ ------------
Income taxes ..................................................... 116,750 116,750
------------ ------------
Net loss ......................................................... $ (4,941,681) $ 4,660,622 $ (281,059)
============ ============ ============
Basic and diluted net loss per share ............................. $ (0.10) $ (0.01)
============ ============
Weighted average basic and diluted shares outstanding ............ 48,026,914 48,026,914
============ ============
(1) Represents the stock option expense associated with the adoption of FAS 123R.
(2) Pro forma amounts exclude stock option expenses recognized for GAAP purposes under FAS 123R. As discussed earlier in
this release, these supplemental non-GAAP financial measures should not be used as a substitute for their comparable
GAAP measures. The pro forma amounts exclude any tax related effects of FAS 123R as these effects are not deemed to be
material.
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