Close
SUBSCRIBE TO TMCnet
TMCnet - World's Largest Communications and Technology Community

TMC NEWS

TMCNET eNEWSLETTER SIGNUP

FalconStor Software Reports Third Quarter Financial Results
[November 07, 2012]

FalconStor Software Reports Third Quarter Financial Results

MELVILLE, N.Y. --(Business Wire)--

FalconStor Software, Inc. (NASDAQ: FALC), the provider of disk-based data protection solutions, today announced financial results for its third quarter ended September 30, 2012.

Overview

Total revenues for the third quarter of 2012 were $17.1 million, compared with $18.9 million for the same period a year ago, a decline of 9%. Total revenues for the third quarter of 2012 increased 4% compared with the second quarter of 2012.

The global macroeconomic weakness continues to factor in soft IT spending, lower business confidence, and uncertainty in the marketplace, which has resulted in lower than anticipated revenues for the quarter.

"While our revenues fell short of our expectations, we are pleased that we were able to achieve sequential revenue growth during a difficult macro environment," said Jim McNiel, president and CEO of FalconStor. "The uncertainty surrounding the global marketplace continues to cause disruptions in our business, specifically with budget freezes, elongated sales cycles, or, in some cases, lost deals due to competitive pricing and sales strategies. Finally, we believe that the steps we took during the third quarter to reduce our operating expenses in response to the current environment have left us well-positioned to execute on our plan to invest in our existing and our new product initiatives."

Retention of Financial Advisor

FalconStor has retained the investment banking firm Wells Fargo Securities, LLC as its exclusive financial advisor to assist the Company in exploring and evaluating strategic alternatives to maximize stockholder value. The Company intends to disclose developments regarding the process only when or if the Board has approved a specific transaction.

Financials

GAAP loss from operations for the quarter was $3.6 million, compared with an operating loss of $5.1 million for the same period a year ago. GAAP net loss for the third quarter was $3.6 million, or $0.08 per share, compared with $5.4 million, or $0.12 per share in the third quarter of 2011. Included in the operating results for the third quarter of 2012 was a net reduction of $1.4 million of investigation, litigation, and settlement costs. The net reduction of $1.4 million resulted from the Company recording a receivable in the third quarter for the recovery of $1.1 million of previously accrued legal fees and $0.4 million of certain costs previously accrued associated with the class action and derivative suits, as a result of a settlement reached with one of our insurance carriers in October 2012. These amounts were partially offset by $0.1 million of overall legal fees not recoverable through insurance. During the same period in 2011, the Company had recorded $0.5 million of costs associated with the then outstanding government investigations and related class actions, which was comprised of overall legal fees.

Non-GAAP loss from operations was $3.1 million in the third quarter of 2012, compared with a loss from operations of $2.3 million for the same period a year ago. Non-GAAP net loss was $3.1 million, or a loss of $0.07 per share, in the third quarter of 2012, compared with a net loss of $2.6 million, or $0.06 per share, in the third quarter of 2011. Non-GAAP results exclude the effects of stock-based compensation, costs associated with the Company's investigations, litigation and settlement related costs, and restructuring cost.

For the nine months ended September 30, 2012, total revenues were $52.9 million, compared with $57.4 million for the same period a year ago. GAAP loss from operations for the nine month period was $12.0 million compared with a loss of $16.8 million in 2011. GAAP net loss was $12.6 million, or $0.27 per share, for the nine months ended September 30, 2012, compared with a loss of $17.3 million, or $0.37 per share, in the same period a year ago.

Non-GAAP loss from operations was $9.4 million for the nine months ended September 30, 2012, compared with a loss of $7.5 million in 2011. Non-GAAP net loss was $10.1 million, or $0.21 per share, compared with a loss of $8.0 million, or $0.17 per share, in the same period a year ago.

The Company closed the quarter with $25.8 million in cash, cash equivalents, and marketable securities. Deferred revenue at September 30, 2012 was $23.6 million, a decrease of 5% compared with the same period a year ago.

Conference Call

The Company will host a conference call to discuss its financial results on Wednesday November 7, 2012 at 4:30 p.m. EST. To participate in the conference call, please dial:

Toll Free: 1-877-941-8631
International: +1-480-629-9821

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=174468092&RG=1&UID

Meeting: FalconStor Q3 2012 Earnings
Meeting password: q3numbers
Meeting Number: 769 916 414

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 November 7 at 6:30 p.m. EST through 11:59 p.m. EST on November 13. To listen to the replay of the call, dial toll free: 1-800-406-7325 or International: +1-303-590-3030, passcode: 4572048, 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. The non-GAAP financial measures exclude (i) costs associated with the Company's class action and derivative lawsuits, government investigations, and related legal fees, (ii) noncash stock-based compensation charges and any potential tax effects and (iii) restructuring costs, when applicable. 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 a market leader in disk-based data protection. The company's mission is to transform traditional backup and disaster recovery (DR) into next-generation service-oriented data protection. Built upon an award-winning platform, FalconStor solutions deliver disk-based backup, continuous data protection, WAN-optimized replication and DR automation. FalconStor solutions are available through a worldwide network of partners, including solution providers, top-tier strategic partners and major OEMs. Thousands of customers worldwide, from small businesses to Fortune 100 enterprises, entrust their data to FalconStor solutions. FalconStor maintains headquarters in Melville, N.Y., and offices throughout Europe and the Asia Pacific region. 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 data protection industry; competition in the data protection market; results and costs associated with governmental investigations; 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 FalconStor Software are registered trademarks 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,

2012

December 31,

2011

(unaudited)
Assets
Current assets:

Cash and cash equivalents

$ 12,154,409 $ 16,257,694
Marketable securities 13,201,701 20,894,328
Accounts receivable, net 10,965,296 19,314,789
Prepaid expenses and other current assets 4,716,228 1,912,831
Inventory 721,827 1,769,007
Deferred tax assets, net   175,624   177,798
Total current assets   41,935,085   60,326,447
 
Property and equipment, net 4,387,606 4,364,180
Long-term marketable securities 489,999 611,082
Deferred tax assets, net 205,879 217,771
Software development costs, net 1,243,885 1,001,530
Other assets, net 2,207,272 2,183,973
Goodwill 4,150,339 4,150,339
Other intangible assets, net   190,106   191,572
 
Total assets

$

54,810,171

$

73,046,894

 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,514,250 $ 2,883,844
Accrued expenses 11,063,649 17,609,766
Deferred revenue, net   17,526,719   19,450,966
 
Total current liabilities 30,104,618 39,944,576
 
Other long-term liabilities 4,433,219 2,587,327
Deferred revenue, net   6,098,952   7,698,053
 
Total liabilities   40,636,789   50,229,956
 
Commitments and Contingencies
 
Total stockholders' equity   14,173,382   22,816,938
 
Total liabilities and stockholders' equity $ 54,810,171 $ 73,046,894

FalconStor Software, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

       
Three Months Ended

September 30,

Nine Months Ended

September 30,

2012 2011 2012 2011
 
Revenues:
Product revenues $ 8,550,551 $ 10,176,275 $ 27,049,072 $ 33,045,050
Support and services revenues   8,538,462     8,680,115     25,874,214     24,398,610  
17,089,013 18,856,390 52,923,286 57,443,660
Cost of revenues:
Product 1,562,359 1,467,141 5,370,031 5,456,186
Support and service   3,318,558     3,339,448     9,570,969     9,877,256  
Total cost of revenues   4,880,917     4,806,589     14,941,000     15,333,442  
 

Gross profit

$

12,208,096

$

14,049,801

$

37,982,286

$

42,110,218

 

Operating expenses:

Research and development costs 4,643,102 5,033,211 14,115,388 16,383,318
Selling and marketing 8,272,973 9,878,069 27,302,960 28,873,468
General and administrative 3,461,880 2,904,767 9,590,909 8,463,762

Investigation, litigation and
settlement related costs

(1,353,571

)

531,507

(1,793,368

)

4,331,298

Restructuring costs   770,749     822,320     770,749     822,320  
Total operating expenses   15,795,133     19,169,874     49,986,638     58,874,166  
 

Operating loss

 

 

(3,587,037

)

 

(5,120,073

)

 

(12,004,352

)

 

(16,763,948

)

 
Interest and other income (loss), net   102,059     (71,266 )   (142,805 )   379,690  
 
Loss before income taxes   (3,484,978 )   (5,191,339 )   (12,147,157 )   (16,384,258 )
 
Provision for income taxes   83,073     206,837     490,888     869,221  
 
Net loss $ (3,568,051 ) $ (5,398,176 ) $ (12,638,045 ) $ (17,253,479 )
 
 
Basic net loss per share $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
 
Diluted net loss per share $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
 

Weighted average basic shares
outstanding

  47,542,304     46,779,040     47,353,922     46,563,004  

Weighted average diluted shares
outstanding

  47,542,304     46,779,040     47,353,922     46,563,004  

FalconStor Software, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

       
Three Months Ended

September 30,

Nine Months Ended

September 30,

2012 2011 2012 2011
 
GAAP loss from operations $ (3,587,037 ) $ (5,120,073 ) $ (12,004,352 ) $ (16,763,948 )
Add: Non-cash stock option expense (1) 1,055,778 1,436,578 3,594,156 4,091,878
Legal related costs (3) (1,353,571 ) 531,507 (1,793,368 ) 4,331,298
Restructuring costs (4)   770,749     822,320     770,749     822,320  
Non-GAAP loss from operations   (3,114,081 )   (2,329,668 )   (9,432,815 )   (7,518,452 )

 

GAAP net loss $ (3,568,051 ) $ (5,398,176 ) $ (12,638,045 ) $ (17,253,479 )
Add: Non-cash stock option expense,
net of income taxes (2) 1,055,778 1,436,578 3,594,156 4,091,878
Legal related costs (3) (1,353,571 ) 531,507 (1,793,368 ) 4,331,298
Restructuring costs (4)   770,749     822,320     770,749     822,320  
Non-GAAP net loss   (3,095,095 )   (2,607,771 )   (10,066,508 )   (8,007,983 )
 
GAAP gross margin - Product 82 % 86 % 80 % 84 %
Add: Non-cash stock option expense (1)   0 %   0 %   0 %   0 %
Non-GAAP gross margin - Product   82 %   86 %   80 %   84 %
 
GAAP gross margin - Support
and Service 61

%

62 % 63 % 60 %
Add: Non-cash stock option expense (1)   1 %   1 %   0 %   2 %
Non-GAAP gross margin - Support
and Service   62 %   63 %   63 %   61 %
 
GAAP operating margin (21 %) (27 %) (23 %) (29 %)
Add: Non-cash stock option expense (1) 6 % 8 % 7 % 7 %
Legal related costs (3) (8 %) 3 % (3 %) 8 %
Restructuring costs (4)   5 %   4 %   1 %   1 %
Non-GAAP operating margin   (18 %)   (12 %)   (18 %)   (13 %)

 

GAAP Basic EPS $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
Add: Non-cash stock option expense,
net of income taxes (2) 0.02 0.03 0.08 0.09
Legal related costs (3) (0.03 ) 0.01 (0.04 ) 0.09
Restructuring costs (4)   0.02     0.02     0.02     0.02  
Non-GAAP Basic EPS   (0.07 )   (0.06 )   (0.21 )   (0.17 )

 

GAAP Diluted EPS $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
Add: Non-cash stock option expense,
net of income taxes (2) 0.02 0.03 0.08 0.09
Legal related costs (3) (0.03 ) 0.01 (0.04 ) 0.09
Restructuring costs (4)   0.02     0.02     0.02     0.02  
Non-GAAP Diluted EPS   (0.07 )   (0.06 )   (0.21 )   (0.17 )

 

Weighted average basic shares
Outstanding (GAAP and as adjusted)   47,542,304     46,779,040     47,353,922     46,563,004  
 
Weighted average diluted shares
Outstanding (GAAP and as adjusted)   47,542,304     46,779,040     47,353,922     46,563,004  

Footnotes:

(1) Represents non-cash, stock-based compensation charges as follows:

   
Three Months Ended

September 30,

Nine Months Ended

September 30,

2012   2011 2012   2011
 
Cost of revenues - Product $ 113 $ 1,169 $ 212 $ 2,641
Cost of revenues - Support and Service 53,314 111,830 103,158 385,032
Research and development costs 127,982 235,782 572,170 1,044,193
Selling and marketing 388,167 585,814 1,272,823 1,471,093
General and administrative   486,202   501,983   1,645,793   1,188,919
 

Total non-cash stock-based
compensation expense

$ 1,055,778 $ 1,436,578 $ 3,594,156 $ 4,091,878
(2)   Represents the effects of non-cash stock-based compensation expense recognized in accordance with the FASB Accounting Standards Codification, Topic 718, net of related income tax effects. For the three and nine months ended September 30, 2012 and 2011, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.
 
(3) Legal related costs represent amounts in connection with the Company's investigations, litigation and settlement related costs for each respective period presented.
 
(4) Represents restructuring costs which were incurred during each respective period presented.


[ Back To TMCnet.com's Homepage ]





LATEST VIDEOS

DOWNLOAD CENTER

UPCOMING WEBINARS

MOST POPULAR STORIES





Technology Marketing Corporation

800 Connecticut Ave, 1st Floor East, Norwalk, CT 06854 USA
Ph: 800-243-6002, 203-852-6800
Fx: 203-866-3326

General comments: tmc@tmcnet.com.
Comments about this site: webmaster@tmcnet.com.

STAY CURRENT YOUR WAY

© 2014 Technology Marketing Corporation. All rights reserved.