Contact: Joanne Ferrara, Investor Relations
631-773-5813
joanne.ferrara@falconstor.com
FalconStor Software Reports Third Quarter Results
Revenues Increase 10% from Prior Year
Generates Third Quarter Operating Cash Flow of $9.6 Million
MELVILLE, N.Y., October 28, 2009—FalconStor Software, Inc. (NASDAQ: FALC), the provider of TOTALLY Open™ data protection solutions, today announced financial results for its third quarter ended September 30, 2009.
Revenues for the third quarter of 2009 increased 10% to $21.5 million, compared with $19.6 million for the same period a year ago. GAAP loss from operations for the quarter was $2.5 million, compared with a loss of $1.4 million in the third quarter of 2008. GAAP net loss for the quarter was $2.0 million, or $0.05 per share, compared with a loss of $1.6 million, or $0.03 per share, in the third quarter of 2008. Stock-based compensation expense was $2.2 million in the third quarter of 2009 and $1.6 million in the third quarter of 2008.
Non-GAAP loss from operations was $0.2 million in the third quarter of 2009, compared with operating income of $0.3 million in the third quarter of 2008. Non-GAAP net income was $0.1 million in the third quarter of 2009, or breakeven on a per share basis, compared with $0.4 million, or $0.01 per diluted share, in the third quarter of 2008. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.
For the nine months ended September 30, 2009, revenues increased 5% to $67.0 million, compared with $63.6 million for the same period a year ago. GAAP loss from operations for the nine month period was $3.0 million compared with income from operations of $1.2 million in 2008. GAAP net loss was $1.6 million, or $0.04 per share for the nine months ended September 30, 2009, compared with net income of $0.6 million, or $0.01 per diluted share, in the same period a year ago. Stock-based compensation expense was $6.7 million in 2009 and $6.6 million in 2008.
Non-GAAP income from operations was $3.7 million for the nine months ended September 30, 2009, compared with $7.8 million in 2008. Non-GAAP net income was $3.6 million, or $0.08 per diluted share, compared with $5.8 million, or $0.11 per diluted share in the same period a year ago. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.
The Company generated $9.6 million in cash flow from operations in the third quarter and closed the quarter with $46.9 million in cash, cash equivalents and marketable securities. Deferred revenue at the end of the quarter was $20.2 million.
"The increasing level of field activities with industry and channel partners is a recognition of our ability to reduce operating costs for our customers and to optimize business continuity with Totally Open data protection solutions," said ReiJane Huai, chairman and CEO of FalconStor Software. "We will continue to invest in sales, marketing and support infrastructure to bolster our brand and to accelerate business momentum through the channel."
The Company will host a conference call on Wednesday, October 28, 2009, at 4:30 p.m. ET to discuss the results. To participate in the conference call, please dial:
Toll Free: 1-877-941-9205
International: +1-480-629-9835
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=128344097&RG=1&UID
Meeting: FalconStor Q3 2009 Earnings
Meeting password: q3numbers
Meeting Number: 480 662 291
If you are unable to register via the Internet, please contact Joanne Ferrara, Investor Relations at 631-773-5813 or joanne.ferrara@falconstor.com.
A conference call replay is scheduled to be available beginning October 28, 2009 at 6:30 p.m. ET through 11:59 p.m. ET on November 2, 2009. To listen to the replay of the call, dial toll free: 1-800-406-7325 or International: +1-303-590-3030, passcode: 4172522, or visit our website at www.falconstor.com/investors.
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 into the 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 Non-GAAP Operating Data GAAP Reconciliation, presented in this release.
About FalconStor
FalconStor Software, Inc. (NASDAQ: FALC) is the market leader in disk-based data protection. FalconStor delivers proven, comprehensive data protection solutions that facilitate the continuous availability of business-critical data with speed, integrity, and simplicity. The Company’s TOTALLY Open™ technology solutions, built upon the award-winning IPStor® platform, include the industry leading Virtual Tape Library (VTL) with deduplication, Continuous Data Protector (CDP), File-interface Deduplication System (FDS), and Network Storage Server (NSS), each enabled with WAN-optimized replication for disaster recovery and remote office protection. FalconStor products are available from major OEMs and solution providers including 3Com, Acer, COPAN Systems, Data Direct Networks, Dynamic Solutions International, EMC, IBM, Pillar Data Systems, Spectra Logic, and Sun and are deployed by thousands of customers worldwide, from small businesses to Fortune 1000 enterprises.
FalconStor is headquartered in Melville, N.Y., with offices throughout Europe and the Asia Pacific region. For more information, visit www.falconstor.com or call 1-866-NOW-FALC (1-866-669-3252).
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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.
FalconStor, FalconStor Software, and IPStor are registered trademarks, and TOTALLY Open is a trademark of FalconStor Software, Inc. in the US and other countries. All other company and product names contained herein may be trademarks of their respective holders.
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | September 30, | | | December 31, | |
| | | (unaudited) | | | | |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 23,238,901 | | | $ | 22,364,235 | |
| Marketable securities | | | 22,487,961 | | | | 19,279,010 | |
| Accounts receivable, net | | | 20,897,995 | | | | 25,015,848 | |
| Prepaid expenses and other current assets | | | 2,346,378 | | | | 2,468,632 | |
| Deferred tax assets, net | | | 4,920,204 | | | | 4,296,297 | |
| | | | | | | | | |
| Total current assets | | | 73,891,439 | | | | 73,424,022 | |
| | | | | | | | | |
| Property and equipment, net | | | 7,310,715 | | | | 7,963,019 | |
| Long-term marketable securities | | | 1,144,202 | | | | 1,166,945 | |
| Deferred tax assets, net | | | 6,648,202 | | | | 5,739,195 | |
| Other assets, net | | | 3,234,224 | | | | 2,544,545 | |
| Goodwill | | | 4,150,339 | | | | 4,150,339 | |
| Other intangible assets, net | | | 939,421 | | | | 1,375,695 | |
| | | | | | | | | |
| Total assets | | $ | 97,318,542 | | | $ | 96,363,760 | |
| | | | | | | | | |
| Liabilities and Stockholders' Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 993,969 | | | $ | 738,140 | |
| Accrued expenses | | | 7,549,960 | | | | 8,288,732 | |
| Deferred revenue, net | | | 14,955,986 | | | | 16,068,370 | |
| | | | | | | | | |
| Total current liabilities | | | 23,499,915 | | | | 25,095,242 | |
| | | | | | | | | |
| Other long-term liabilities | | | 524,003 | | | | 199,323 | |
| Deferred revenue, net | | | 5,202,653 | | | | 5,992,843 | |
| | | | | | | | | |
| Total liabilities | | | 29,226,571 | | | | 31,287,408 | |
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| Total stockholders' equity | | | 68,091,971 | | | | 65,076,352 | |
| | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 97,318,542 | | | $ | 96,363,760 | |
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | | | |
| | | | | | | |
| Revenues: | | | | | | | | | | | | |
| Software license revenue | | $ | 13,615,625 | | | $ | 12,260,527 | | | $ | 44,346,747 | | | $ | 42,597,810 | |
| Maintenance revenue | | | 6,469,942 | | | | 6,190,467 | | | | 18,823,718 | | | | 16,826,595 | |
| Software services and other revenue | | | 1,454,602 | | | | 1,160,499 | | | | 3,859,409 | | | | 4,220,694 | |
| | | | 21,540,169 | | | | 19,611,493 | | | | 67,029,874 | | | | 63,645,099 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Amortization of purchase and capitalized software | | | 180,127 | | | | 106,369 | | | | 538,623 | | | | 184,107 | |
| Cost of maintenance, software services and other revenue | | | 4,093,317 | | | | 3,352,938 | | | | 11,495,731 | | | | 10,175,092 | |
| Software development costs | | | 6,949,552 | | | | 6,246,839 | | | | 20,005,304 | | | | 18,359,721 | |
| Selling and marketing | | | 10,391,931 | | | | 9,164,599 | | | | 31,023,224 | | | | 27,677,889 | |
| General and administrative | | | 2,388,860 | | | | 2,090,952 | | | | 6,996,357 | | | | 6,077,703 | |
| | | | 24,003,787 | | | | 20,961,697 | | | | 70,059,239 | | | | 62,474,512 | |
| Operating (loss) income | | | (2,463,618 | ) | | | (1,350,204 | ) | | | (3,029,365 | ) | | | 1,170,587 | |
| Interest and other income, net | | | 239,516 | | | | 251,955 | | | | 18,811 | | | | 1,234,659 | |
| | | | | | | | | | | | | | | | | |
| (Loss) income before income taxes | | | (2,224,102 | ) | | | (1,098,249 | ) | | | (3,010,554 | ) | | | 2,405,246 | |
| | | | | | | | | | | | | | | | | |
| (Benefit) provision for income taxes | | | (192,697 | ) | | | 463,995 | | | | (1,394,902 | ) | | | 1,840,522 | |
| | | | | | | | | | | | | | | | | |
| Net (loss) income | | $ | (2,031,405 | ) | | $ | (1,562,244 | ) | | $ | (1,615,652 | ) | | $ | 564,724 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Basic net (loss) income per share | | $ | ( 0.05 | ) | | $ | (0.03 | ) | | $ | ( 0.04 | ) | | $ | 0.01 | |
| | | | | | | | | | | | | | | | | |
| Diluted net (loss) income per share | | $ | (0.05 | ) | | $ | (0.03 | ) | | $ | (0.04 | ) | | $ | 0.01 | |
| | | | | | | | | | | | | | | | | |
| Weighted average basic shares outstanding | | | 44,803,379 | | | | 47,522,085 | | | | 44,812,807 | | | | 48,389,670 | |
| Weighted average diluted shares outstanding | | | 44,803,379 | | | | 47,522,085 | | | | 44,812,807 | | | | 50,377,370 | |
FalconStor Software, Inc. and Subsidiaries
Non-GAAP Operating Data
GAAP Reconciliation
(Unaudited)
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| GAAP (loss) income from operations | | $ | (2,463,618 | ) | | $ | (1,350,204 | ) | | $ | (3,029,365 | ) | | $ | 1,170,587 | |
Add: non-cash stock option expense (1) | | | 2,241,792 | | | | 1,607,173 | | | | 6,712,549 | | | | 6,580,520 | |
| Non-GAAP (loss) income from operations | | | (221,826 | ) | | | 256,969 | | | | 3,683,184 | | | | 7,751,107 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| GAAP net (loss) income | | $ | (2,031,405 | ) | | $ | (1,562,244 | ) | | $ | (1,615,652 | ) | | $ | 564,724 | |
Add: non-cash stock option expense, net of income taxes (2) | | | 2,149,332 | | | | 1,936,120 | | | | 5,187,743 | | | | 5,187,743 | |
| Non-GAAP net income | | | 117,927 | | | | 373,876 | | | | 3,572,091 | | | | 5,765,084 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| GAAP operating margins | | | (11 | %) | | | (7 | %) | | | (5 | %) | | | 2 | % |
Add: non-cash stock option expense (1) | | | 10 | % | | | 8 | % | | | 10 | % | | | 10 | % |
| Non-GAAP operating margins | | | (1 | %) | | | 1 | % | | | 5 | % | | | 12 | % |
| | | | | | | | | | | | | | | | | |
| GAAP Basic EPS | | $ | (0.05 | ) | | $ | (0.03 | ) | | $ | (0.04 | ) | | $ | 0.01 | |
Add: non-cash stock option expense, net of income taxes (2) | | | 0.05 | | | | 0.04 | | | | 0.12 | | | | 0.11 | |
| Non-GAAP Basic EPS | | | 0.00 | | | | 0.01 | | | | 0.08 | | | | 0.12 | |
| | | | | | | | | | | | | | | | | |
| GAAP Diluted EPS | | $ | (0.05 | ) | | $ | (0.03 | ) | | $ | (0.04 | ) | | $ | 0.01 | |
Add: non-cash stock option expense, net of income taxes (2) | | | 0.05 | | | | 0.04 | | | | 0.11 | | | | 0.10 | |
| Non-GAAP Diluted EPS | | | 0.00 | | | | 0.01 | | | | 0.08 | | | | 0.11 | |
| | | | | | | | | | | | | | | | | |
Weighted average basic shares Outstanding (GAAP and as adjusted) | | | 44,803,379 | | | | 47,522,085 | | | | 44,812,807 | | | | 48,389,670 | |
Weighted average diluted shares Outstanding (GAAP and as adjusted) | | | 46,823,133 | | | | 49,201,574 | | | | 46,041,703 | | | | 50,377,370 | |
Footnotes:
| (1) | Represents non-cash, stock-based compensation charges as follows: |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Cost of maintenance, software services and other revenue | | $ | 397,414 | | | $ | 335,033 | | | $ | 1,149,568 | | | $ | 1,008,742 | |
| Software development costs | | | 821,015 | | | | 565,481 | | | | 2,302,777 | | | | 2,323,072 | |
| Selling and marketing | | | 731,571 | | | | 585,866 | | | | 2,425,043 | | | | 2,618,594 | |
| General and administrative | | | 291,792 | | | | 120,793 | | | | 835,161 | | | | 630,112 | |
| | | | | | | | | | | | | | | | | |
| Total non-cash stock-based compensation expense | | $ | 2,241,792 | | | $ | 1,607,173 | | | $ | 6,712,549 | | | $ | 6,580,520 | |
| (2) | Represents the effects of non-cash stock-based compensation expense recognized in accordance with the FASB Accounting Standards Codification, Topic 718, for the three and nine months ended September 30, 2009 and 2008, net of related income tax effects. |
