Exhibit 99.1
FalconStor
Software
Contact: Denise Tortorelli, Investor Relations
631-773-5877
DENISE.TORTORELLI@FALCONSTOR.COM
FALCONSTOR SOFTWARE ANNOUNCES Q3 QUARTERLY RESULTS
REVENUES INCREASE 29% FROM PRIOR YEAR
MELVILLE, N.Y., October 26, 2006--FalconStor Software, Inc. (NASDAQ: FALC), the
leading developer of data protection solutions, today announced financial
results for its third quarter ended September 30, 2006.
Revenues for the third quarter of 2006 increased 29% to $13 million, compared
with $10.1 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 stock options. Pro forma net income for the third quarter of 2006, excluding
stock option expense, was $1.2 million or $0.02 per share, compared with net
income of $0.5 million or $0.01 per share for the third quarter of 2005.
For the nine months ended September 30, 2006, revenues increased 25% to $34.8
million, compared with $27.9 million for the same period a year ago. Net loss
for the nine month period was $6.2 million or $0.13 per share, which includes
$7.1 million in expenses related to stock options. Pro forma net income for the
nine month period, excluding stock option expense, was $0.9 million or $0.02 per
share, compared with net income of $0.6 million and $0.01 per share for the same
period a year ago.
Compared with the previous quarter, revenues increased from $12.7 million in the
second quarter of 2006 to $13 million in the third quarter of 2006. Net loss for
the third quarter was $1.3 million or $0.03 per share, which includes $2.4
million in expenses related to stock options, compared with a net loss of $1.3
million or $0.03 per share in the second quarter, which includes $2.4 million in
expenses related to stock options. Excluding stock option expenses, pro forma
net income increased to $1.2 million or $0.02 per share in the third quarter of
2006 compared with a pro forma net income of $1.1 million or $0.02 per share in
the second quarter of 2006.
The Company closed the quarter with $39 million in cash, cash equivalents and
marketable securities and recorded its eighth consecutive quarter of positive
cash flows from operations. During the third quarter of 2006, the Company
repurchased 70,000 shares of Common Stock for a total cost of $0.5 million.
Deferred revenue at September 30, 2006, increased to $12 million, or by 8%,
compared with the previous quarter, and by 58% compared with the same period a
year ago.
"We are pleased with the strong progressive results for this quarter. It is
clear our teaming with leading industry storage companies to advance the market
acceptance and technical excellence of Virtual Tape Library (VTL) solutions is
successful," said ReiJane Huai, Chairman and CEO of FalconStor. "Our world-wide
leadership position in data protection solutions will enable FalconStor business
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partners to sell the vision of a complete family of disk-based data protection
solutions. This will accelerate our revenue growth and bolster our presence in
the network storage industry."
The company will host a conference call on Thursday, October 26th at 4:30 p.m.
EDT, to discuss the results. To participate in the conference call, please dial:
Toll Free: 800-240-8621
International: 303-262-2194
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=93586157&RG=1
Meeting: FalconStor Q3 2006 Earnings
Meeting password: q3numbers
Meeting Number: 483 077 652
A conference call replay will be available beginning 10/26 at 6:30 PM EDT
through 11:59 PM EDT on 10/30. To listen to the replay of the call, dial toll
free: 800-405-2236 or International: 303-590-3000, passcode: 11073710#, 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).
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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
September 30, December 31,
2006 2005
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ....................................... $12,564,588 $18,796,973
Marketable securities ........................................... 26,478,649 17,833,683
Accounts receivable, net......................................... 15,439,649 15,187,408
Prepaid expenses and other current assets ....................... 1,045,940 911,715
----------- -----------
Total current assets ...................................... 55,528,826 52,729,779
----------- -----------
Property and equipment, net ........................................ 5,604,105 5,277,609
Goodwill ........................................................... 3,512,796 3,512,796
Other intangible assets, net ....................................... 297,883 216,864
Other assets ....................................................... 1,852,170 2,236,725
----------- -----------
Total assets .............................................. $66,795,780 $63,973,773
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 1,132,011 $ 1,152,228
Accrued expenses ................................................. 4,469,176 4,522,212
Deferred revenue ................................................. 9,154,879 7,401,018
----------- -----------
Total current liabilities ................................. 14,756,066 13,075,458
Deferred revenue ................................................... 2,825,887 2,240,208
----------- -----------
Total liabilities ......................................... 17,581,953 15,315,666
----------- -----------
Commitments
Total stockholders' equity ................................ 49,213,827 48,658,107
----------- -----------
Total liabilities and stockholders' equity ................ $66,795,780 $63,973,773
=========== ===========
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FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- --------------------------------
2006 2005 2006 2005
(unaudited) (unaudited)
Revenues
Software license revenue ............................. $ 8,685,667 $ 7,007,075 $ 23,088,377 $ 19,940,026
Maintenance revenue .................................. 3,315,771 1,972,037 8,815,288 5,293,478
Software services and other revenue .................. 964,673 1,077,553 2,938,993 2,710,784
------------ ------------ ------------ ------------
12,966,111 10,056,665 34,842,658 27,944,288
Operating expenses:
Amortization of purchased and capitalized
software ........................................ 81,334 189,472 334,389 605,472
Cost of maintenance, software services
and other revenue ............................... 2,246,085 1,666,459 6,550,747 4,462,542
Software development costs ......................... 5,067,882 3,007,337 14,580,122 8,438,473
Selling and marketing .............................. 5,809,706 3,814,540 16,400,453 11,298,883
General and administrative ......................... 1,489,537 1,103,778 4,200,971 3,121,089
------------ ------------ ------------ ------------
14,694,544 9,781,586 42,066,682 27,926,459
------------ ------------ ------------ ------------
Operating income (loss) ................... (1,728,433) 275,079 (7,224,024) 17,829
------------ ------------ ------------ ------------
Interest and other income .......................... 514,415 245,218 1,185,075 668,713
------------ ------------ ------------ ------------
Income (loss) before income
taxes ............................. (1,214,018) 520,297 (6,038,949) 686,542
------------ ------------ ------------ ------------
Provision for income taxes ........................... 44,353 37,418 161,103 49,387
------------ ------------ ------------ ------------
Net income (loss) ............................. $ (1,258,371) $ 482,879 $ (6,200,052) $ 637,155
============ ============ ============ ============
Basic net income (loss) per share .................... $ (0.03) $ 0.01 $ (0.13) $ 0.01
============ ============ ============ ============
Diluted net income (loss) per share .................. $ (0.03) $ 0.01 $ (0.13) $ 0.01
============ ============ ============ ============
Weighted average basic shares outstanding ............ 47,990,558 47,720,496 48,014,662 47,615,182
============ ============ ============ ============
Weighted average diluted shares outstanding .......... 47,990,558 50,531,012 48,014,662 50,715,162
============ ============ ============ ============
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FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2006
(UNAUDITED)
GAAP RECONCILIATION
Adjustment to
Exclude Stock Non-GAAP
GAAP Option Expense (1) Pro Forma (2)
------------ ------------------- -------------
Revenues:
Software license revenue .......................................... $ 8,685,667 $ 8,685,667
Maintenance revenue ............................................... 3,315,771 3,315,771
Software services and other revenue ............................... 964,673 964,673
------------ ------------
12,966,111 12,966,111
------------ ------------
Operating expenses:
Amortization of purchased and capitalized software ................ 81,334 81,334
Cost of software services and other revenue ....................... 2,246,085 (361,263) 1,884,822
Software development costs ........................................ 5,067,882 (1,100,510) 3,967,372
Selling and marketing ............................................. 5,809,706 (758,718) 5,050,988
General and administrative ........................................ 1,489,537 (202,782) 1,286,755
------------ ------------ ------------
14,694,544 (2,423,273) 12,271,271
------------ ------------ ------------
Operating income (loss) ................................ (1,728,433) 2,423,273 694,840
------------ ------------ ------------
Interest and other income ......................................... 514,415 514,415
------------ ------------
Income (loss) before income taxes ................................. (1,214,018) 2,423,273 1,209,255
------------ ------------ ------------
Income taxes ...................................................... 44,353 44,353
------------ ------------
Net income (loss) ................................................. $ (1,258,371) $ 2,423,273 $ 1,164,902
============ ============ ============
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 ......................... 47,990,558 47,990,558
============ ============
Weighted average diluted shares outstanding ....................... 47,990,558 49,194,707
============ ============
(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
NINE MONTHS ENDED SEPTEMBER 30, 2006
(UNAUDITED)
GAAP RECONCILIATION
Adjustment to
Exclude Stock Non-GAAP
GAAP Option Expense (1) Pro Forma (2)
------------ ------------------- -------------
Revenues:
Software license revenue ......................................... $ 23,088,377 $ 23,088,377
Maintenance revenue .............................................. 8,815,288 8,815,288
Software services and other revenue .............................. 2,938,993 2,938,993
------------ ------------
34,842,658 34,842,658
------------ ------------
Operating expenses:
Amortization of purchased and capitalized software ............... 334,389 334,389
Cost of software services and other revenue ...................... 6,550,747 (1,060,812) 5,489,935
Software development costs ....................................... 14,580,122 (3,233,609) 11,346,513
Selling and marketing ............................................ 16,400,453 (2,104,256) 14,296,197
General and administrative ....................................... 4,200,971 (685,218) 3,515,753
------------ ------------ ------------
42,066,682 (7,083,895) 34,982,787
------------ ------------ ------------
Operating loss ........................................ (7,224,024) 7,083,895 (140,129)
------------ ------------ ------------
Interest and other income ........................................ 1,185,075 1,185,075
------------ ------------
Income (loss) before income taxes ................................ (6,038,949) 7,083,895 1,044,946
------------ ------------ ------------
Income taxes ..................................................... 161,103 161,103
------------ ------------
Net income (loss) ................................................ $ (6,200,052) $ 7,083,895 $ 883,843
============ ============ ============
Basic net income (loss) per share ................................ $ (0.13) $ 0.02
============ ============
Diluted net income (loss) per share ............................. $ (0.13) $ 0.02
============ ============
Weighted average basic shares outstanding ........................ 48,014,662 48,014,662
============ ============
Weighted average diluted shares outstanding ...................... 48,014,662 48,859,480
============ ============
(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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