Exhibit 99.1
FALCONSTOR
Software
Contact: Joanne Ferrara, Investor Relations
631-773-5813
JOANNE.FERRARA@FALCONSTOR.COM
FALCONSTOR SOFTWARE ANNOUNCES Q3 QUARTERLY RESULTS
REVENUES INCREASE 43% FROM PRIOR YEAR
MELVILLE, N.Y., October 25, 2007--FalconStor Software, Inc. (NASDAQ: FALC),
the market leader in disk-based data protection solutions, today announced
financial results for its third quarter ended September 30, 2007.
Revenues for the third quarter of 2007 increased 43% to $18.5 million, compared
with $13.0 million for the same period a year ago. Net income for the quarter
was $6.3 million, or $0.12 per diluted share, which includes $2.1 million in
expenses related to stock-based compensation and an income tax benefit of $4.5
million, compared with a net loss of $1.3 million, or $0.03 per diluted share,
in Q3 2006, which included $2.4 million in expenses related to stock-based
compensation.
The income tax benefit of $4.5 million recorded in the third quarter of 2007 was
primarily associated with the reversal of deferred tax asset valuation
allowances in response to continuing favorable developments in operating results
and financial projections.
Pro forma income before income taxes, which excludes stock-based compensation
expense, was $3.9 million or $0.07 per diluted share in the third quarter of
2007, compared with pro forma income before income taxes of $1.2 million or
$0.02 per diluted share for the third quarter of 2006. Pro forma operating
margins increased to 17% in the third quarter of 2007 compared with pro forma
operating margins of 5% in the same period a year ago.
For the nine months ended September 30, 2007, revenues increased 51% to $52.6
million, compared with $34.8 million for the same period a year ago. Net income
for the nine-month period was $7.1 million, or $0.13 per diluted share, which
includes $6.2 million in stock-based compensation expense and an income tax
benefit of $4.6 million, compared with a net loss of $6.2 million, or $0.13 per
diluted share, in the same period a year ago which included $7.1 million in
stock-based compensation expense. Pro forma income before income taxes, which
excludes stock-based compensation expense, was $8.7 million, or $0.17 per
diluted share, compared with pro forma income before income taxes of $1.0
million, or $0.02 per diluted share, in 2006.
The Company closed the quarter with $59.8 million in cash, cash equivalents and
marketable securities. Cash flow from operations was $6.5 million in the quarter
and $18.0 million year to date. Deferred revenue at September 30, 2007 was $17.6
million, which increased 47% compared with the same period a year ago.
"We are pleased with the consistent expansions of our product portfolio,
strategic partners, sales channel and operating margins," said ReiJane Huai,
Chairman and CEO of FalconStor. "Besides continuing growth in the enterprise
space, we will be creating additional growth drivers by leveraging our software
to enable our OEM partners and distributors to create easy-to-deploy turnkey
appliances to expand our market coverage to include remote offices and mid-range
accounts."
The company will host a conference call on Thursday, October 25th at 4:30 p.m.
ET, to discuss the results. To participate in the conference call, please dial:
Toll Free: 1 866-249-5225
International: 1 303-262-2137
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=102987297&RG=1&UID=0
Meeting: FalconStor Q3 2007 Earnings
Meeting password: q3numbers
Meeting Number: 483 737 776
A conference call replay is scheduled to be available beginning 10/25 at 6:30
PM ET through 11:59 PM ET on 10/30. To listen to the replay of the call, dial
toll free: 1 800-405-2236 or International: 1 303-590-3000, passcode:
11099526#, 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 market leader in disk-based data
protection. We deliver proven, comprehensive data protection solutions that
facilitate the continuous availability of business-critical data with speed,
integrity, and simplicity. Our technology-independent solutions, built upon the
award-winning IPStor(R) virtualization platform, include the industry-leading
VirtualTape Library (VTL) with Single Instance Repository (SIR) for
de-duplication, Continuous Data Protection (CDP), Storage Virtualization, and
Replication for disaster recovery and remote office protection. Our products are
available from major OEMs and solution providers including EMC, SUN, Brocade,
H3C, and COPAN and are deployed by thousands of customers worldwide, from small
businesses to Fortune 1000 enterprises.
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.
FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2007 2006
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ..................................... $29,980,400 $15,605,329
Marketable securities ......................................... 29,854,300 25,354,259
Accounts receivable, net ...................................... 18,116,546 24,134,257
Prepaid expenses and other current assets ..................... 1,625,876 1,244,937
Deferred tax asset, net ....................................... 2,074,034 --
----------- -----------
Total current assets ................................... 81,651,156 66,338,782
----------- -----------
Property and equipment, net ...................................... 7,320,238 5,960,317
Goodwill ......................................................... 3,512,796 3,512,796
Other intangible assets, net ..................................... 431,549 407,316
Deferred tax asset, net of current portion ....................... 2,749,300 --
Other assets ..................................................... 2,286,990 2,011,433
----------- -----------
Total assets ........................................... $97,952,029 $78,230,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 839,058 $ 1,432,510
Accrued expenses .............................................. 5,960,221 6,505,536
Deferred revenue .............................................. 13,382,272 11,466,552
----------- -----------
Total current liabilities ............................... 20,181,551 19,404,598
Other long-term liabilities ...................................... 131,377 137,317
Deferred revenue ................................................. 4,214,591 3,645,482
----------- -----------
Total liabilities ...................................... 24,527,519 23,187,397
----------- -----------
Commitments and Contingencies
Total stockholders' equity ............................. 73,424,510 55,043,247
----------- -----------
Total liabilities and stockholders' equity .............. $97,952,029 $78,230,644
=========== ===========
FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2007 2006 2007 2006
(unaudited) (unaudited)
Revenues
Software license revenue ........................... $ 12,209,650 $ 8,685,667 $ 34,627,635 $ 23,088,377
Maintenance revenue ................................ 4,771,952 3,315,771 13,641,271 8,815,288
Software services and other revenue ................ 1,545,935 964,673 4,349,853 2,938,993
------------ ------------ ------------ ------------
18,527,537 12,966,111 52,618,759 34,842,658
Operating expenses:
Amortization of purchased and
capitalized software .......................... 33,869 81,334 83,691 334,389
Cost of maintenance, software services
and other revenue ............................. 2,852,236 2,246,085 8,058,574 6,550,747
Software development costs ...................... 5,647,805 5,067,882 16,505,471 14,580,122
Selling and marketing ........................... 6,978,239 5,809,706 21,447,423 16,400,453
General and administrative ...................... 1,944,521 1,489,537 5,805,024 4,200,971
------------ ------------ ------------ ------------
17,456,670 14,694,544 51,900,183 42,066,682
------------ ------------ ------------ ------------
Operating income (loss) ................. 1,070,867 (1,728,433) 718,576 (7,224,024)
------------ ------------ ------------ ------------
Interest and other income ....................... 682,132 514,415 1,775,879 1,185,075
------------ ------------ ------------ ------------
Income (loss) before income
taxes............................ 1,752,999 (1,214,018) 2,494,455 (6,038,949)
------------ ------------ ------------ ------------
(Benefit) provision for income taxes ............... (4,507,287) 44,353 (4,590,824) 161,103
------------ ------------ ------------ ------------
Net income (loss) ........................... $ 6,260,286 $ (1,258,371) $ 7,085,279 $ (6,200,052)
============ ============ ============ ============
Basic net income (loss) per share .................. $ 0.13 $ (0.03) $ 0.14 $ (0.13)
============ ============ ============ ============
Diluted net income (loss) per share ................ $ 0.12 $ (0.03) $ 0.13 $ (0.13)
============ ============ ============ ============
Weighted average basic shares
outstanding ...................................... 49,686,430 47,990,558 49,223,884 48,014,662
============ ============ ============ ============
Weighted average diluted shares
outstanding ...................................... 53,482,577 47,990,558 52,744,600 48,014,662
============ ============ ============ ============
FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007
(unaudited)
GAAP RECONCILIATION
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
(unaudited) (unaudited)
Income (loss) before income
taxes (GAAP) .................................... $ 1,752,999 $ (1,214,018) $ 2,494,455 $ (6,038,949)
Adjustment (1) ................................... 2,107,489 2,423,273 6,235,595 7,083,895
------------ ------------ ------------ ------------
Pro forma Income before income
taxes (2) ....................................... 3,860,488 1,209,255 8,730,050 1,044,946
============ ============ ============ ============
Net income (loss) (GAAP) ......................... $ 6,260,286 $ (1,258,371) $ 7,085,279 $ (6,200,052)
Adjustment (1) ................................... 2,107,489 2,423,273 6,235,595 7,083,895
------------ ------------ ------------ ------------
Pro forma net income (2) ......................... 8,367,775 1,164,902 13,320,874 883,843
============ ============ ============ ============
Basic EPS (GAAP) ................................. $ 0.13 $ (0.03) $ 0.14 $ (0.13)
Adjustment ....................................... 0.04 0.05 0.13 0.15
------------ ------------ ------------ ------------
Pro forma Basic EPS .............................. 0.17 0.02 0.27 0.02
============ ============ ============ ============
Diluted EPS (GAAP) ............................... $ 0.12 $ (0.03) $ 0.13 $ (0.13)
Adjustment ....................................... 0.04 0.05 0.12 0.14
------------ ------------ ------------ ------------
Pro forma Diluted EPS ............................ 0.16 0.02 0.25 0.02
============ ============ ============ ============
Weighted average basic shares
outstanding ..................................... 49,686,430 47,990,558 49,223,884 48,014,662
============ ============ ============ ============
Weighted average diluted shares
outstanding ..................................... 53,482,577 49,194,707 52,744,600 48,859,480
============ ============ ============ ============
Footnotes:
(1) Represents non-cash stock-based compensation charges as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
(unaudited) (unaudited)
Cost of maintenance, software
services and other revenue $ 283,860 $ 361,263 $ 793,162 $1,060,812
Software development costs 792,000 1,100,510 2,471,950 3,233,609
Selling and marketing 776,840 758,718 2,210,367 2,104,256
General and administrative 254,789 202,782 760,116 685,218
---------- ---------- ---------- ----------
Total non-cash stock-based
compensation expense $2,107,489 $2,423,273 $6,235,595 $7,083,895
========== ========== ========== ==========
(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.
