FalconStor Software Announces Fourth Quarter and Full Year 2012 Results MELVILLE, N.Y., March 18, 2013 (GLOBE NEWSWIRE) -- FalconStor Software, Inc. (Nasdaq:FALC), a market leader in disk-based data protection, today announced financial results for its fourth quarter and full year that ended December 31, 2012. FalconStor closed the year with over 30 percent sequential revenue growth in the fourth quarter. "Though 2012 was a challenging year for FalconStor, our year-long efforts paid off with a strong fourth quarter, international recognition for product innovation and great strides in product development that we expect will come to fruition this year," said James P. McNiel, president and CEO of FalconStor Software. "With the Company's major outstanding legal issues resolved, FalconStor is moving forward aggressively with its suite of data protection solutions designed to help businesses modernize backup, automate disaster recovery, migrate data and optimize existing storage resources. We continue to address a lucrative market opportunity with the right products at the right time for an IT industry still adjusting to explosive data growth, virtualization, round-the-clock demand for data center services and the advent of Big Data and the cloud." Financial and Business Highlights: *Fourth quarter total revenue increased more than 30 percent compared with the third quarter of 2012. *Positive cash flow from operations in the fourth quarter of $4.3 million. *Full year 2012 support and services revenue increased 2 percent compared with fiscal year 2011. *Full year 2012 total revenue declined 9 percent over fiscal year 2011. *The Company announced the settlement of government investigations in June 2012, an agreement to settle a class action lawsuit in January 2013 and the dismissal of a derivative action lawsuit on March 5, 2013. *Product innovation in 2012 focused on deduplication with enhancements to the FalconStor^® Virtual Tape Library (VTL) solution, which was the Backup & Recovery Solution winner in the Network World Asia Information Management Awards. *Industry recognition for RecoverTrac™ technology as a Best of VMworld 2012 award gold winner in the Business Continuity and Data Protection category demonstrates the importance of automating disaster recovery strategies and testing. *FalconStor^® Network Storage Server (NSS) VS Series HA Appliance received a silver medal in the Best Hardware: Appliance category in the 2012 Windows IT Pro 2012 Editors' Best Awards, highlighting the product's strategic importance, value to customers and competitive advantage within the storage virtualization, data migration and data protection markets. Financials For the year ended December 31, 2012, revenues decreased to $75.4 million, compared with $82.9 million for the same period a year ago. GAAP loss from operations for 2012 was $13.7 million, compared with an operating loss of $22.2 million for the same period a year ago. GAAP net loss for 2012 was $15.0 million, or $0.32 per share, compared with $23.4 million, or $0.50 per share, in 2011. The 2012 operating results include a net reduction of $0.3 million of investigation, litigation and settlement costs. The net reduction of $0.3 million resulted from the Company recording a receivable during 2012 for the recovery of $4.9 million of costs, including any settlements associated with the Class Action and Derivative suits and the reversal of previously accrued costs related to the government investigations of $1.7 million. These amounts were partially offset by $5.0 million for the settlement of the Class Action and $1.3 million of overall legal fees not recoverable through insurance. During the same period in 2011, the Company had recorded $10.3 million of costs associated with the then outstanding government investigations and related class actions, which was comprised of $2.8 million of legal fees and an accrual of $7.5 million for certain costs associated with the then outstanding resolution of the investigations. Non-GAAP loss from operations in 2012 was $8.6 million, compared with a loss from operations of $5.6 million in 2011. Non-GAAP net loss was $9.9 million, or a loss of $0.21 per share, in 2012, compared with a net loss of $6.8 million, or $0.15 per share, in 2011. Non-GAAP results exclude the effects of stock-based compensation, costs associated with the government investigations, litigation and settlement related costs and restructuring cost, when applicable. Total revenues for the fourth quarter of 2012 were $22.5 million, a decrease of 12 percent compared with $25.4 million in the same period a year ago. GAAP loss from operations for the fourth quarter of 2012 was $1.7 million, compared with an operating loss of $5.5 million for the fourth quarter of 2011. GAAP net loss for the quarter was $2.3 million, or $0.05 per share, compared with a net loss of $6.1 million, or $0.13 per share, for the same period a year ago. Included in the operating results for the fourth quarter of 2012 and 2011 was $1.5 million and $5.9 million, respectively, of investigation, litigation and settlement costs. Non-GAAP income from operations was $0.8 million in the fourth quarter of 2012, compared with non-GAAP income from operations of $1.9 million for the same period a year ago. Non-GAAP net income was $0.1 million, or breakeven per share, in the fourth quarter of 2012, compared with the non-GAAP net income of $1.2 million, or $0.03 per share, in the fourth quarter of 2011. Non-GAAP results exclude the effects of stock-based compensation and costs associated with the Company's investigations, litigation and settlement related costs. The Company closed the year with $29.9 million in cash, cash equivalents and marketable securities. Cash flow from operations for the fourth quarter of 2012 was $4.3 million, and for the full year 2012 cash flow from operations was ($5.3) million. Deferred revenue at December 31, 2012, was $24.1 million, a decrease of 11 percent compared with the same period a year ago. Conference Call FalconStor will host a conference call to discuss its financial results today, March 18, 2013, at 4:30 p.m. EDT. To participate in the conference call, please dial 1-877-941-0844 (toll free) or +1-480-629-9835 (international). To view the presentation, visit https://falconstor.webex.com/falconstor/j.php?ED=179176067&RG=1&UID=0 to register for this meeting. Once you have registered for the meeting, you will receive an email message confirming your registration. 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 Software 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 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 disaster recovery automation. FalconStor solutions are available through a worldwide network of partners, including solution providers, top-tier strategic partners, and 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). Follow us on Twitter – Watch us on YouTube – Connect with us on LinkedIn The FalconStor Software, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=16578 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, FalconStor Software and RecoverTrac are either trademarks or registered trademarks of FalconStor Software, Inc., in the U.S. and other countries. All other company and product names contained herein may be trademarks of their respective holders. Links to websites or pages controlled by parties other than FalconStor are provided for the reader's convenience and information only. FalconStor does not incorporate into this release the information found at those links nor does FalconStor represent or warrant that any information found at those links is complete or accurate.Use of information obtained by following these links is at the reader's own risk. FalconStor Software, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS December31, 2012 December31, 2011 Assets (unaudited) Current assets: Cash and cash equivalents $18,651,468 $16,257,694 Restricted cash 750,000 -- Marketable securities 10,530,942 20,894,328 Accounts receivable, net 14,130,302 19,314,789 Prepaid expenses and other current assets 2,796,665 1,912,831 Inventory 642,819 1,769,007 Deferred tax assets, net 464,031 177,798 Total current assets 47,966,227 60,326,447 Property and equipment, net 3,980,679 4,364,180 Long-term marketable securities -- 611,082 Deferred tax assets, net 86,465 217,771 Software development costs, net 1,161,822 1,001,530 Other assets, net 2,185,148 2,183,973 Goodwill 4,150,339 4,150,339 Other intangible assets, net 174,426 191,572 Total assets $59,705,106 $73,046,894 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $2,801,372 $2,883,844 Accrued expenses 16,720,582 17,609,766 Deferred revenue, net 17,831,653 19,450,966 Total current liabilities 37,353,607 39,944,576 Other long-term liabilities 2,618,818 2,587,327 Deferred tax liabilities, net 167,875 -- Deferred revenue, net 6,311,865 7,698,053 Total liabilities 46,452,165 50,229,956 Commitments and contingencies Total stockholders' equity 13,252,941 22,816,938 Total liabilities and stockholders' $59,705,106 $73,046,894 equity FalconStor Software, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 Revenues: Product $14,309,549 $16,425,089 $41,358,621 $49,470,139 revenues Support and services 8,178,134 9,001,853 34,052,348 33,400,463 revenues Totalrevenues 22,487,683 25,426,942 75,410,969 82,870,602 Cost of revenues: Product 2,845,121 2,930,678 8,215,152 8,386,864 Support and 2,875,952 3,252,789 12,446,921 13,130,045 service Total cost of 5,721,073 6,183,467 20,662,073 21,516,909 revenues Gross profit $16,766,610 $19,243,475 $54,748,896 $61,353,693 Operating expenses Research and development 4,520,940 4,816,498 18,636,328 21,199,816 costs Selling and 8,705,695 10,724,122 36,008,655 39,597,590 marketing General and 3,743,566 3,232,750 13,334,475 11,696,512 administrative Investigation, litigation, and 1,466,960 5,926,090 (326,408) 10,257,388 settlement related costs Restructuring -- -- 770,749 822,320 costs Total operating 18,437,161 24,699,460 68,423,799 83,573,626 expenses Operating loss (1,670,551) (5,455,985) (13,674,903) (22,219,933) Interest and other (loss) (380,206) (319,708) (523,011) 59,982 income, net Loss before (2,050,757) (5,775,693) (14,197,914) (22,159,951) income taxes Provision for 295,519 339,111 786,407 1,208,332 income taxes Net loss $(2,346,276) $(6,114,804) $(14,984,321) $(23,368,283) Basic net loss $(0.05) $(0.13) $(0.32) $(0.50) per share Diluted net loss $(0.05) $(0.13) $(0.32) $(0.50) per share Weighted average basic shares outstanding 47,573,019 46,903,896 47,408,995 46,648,928 Weighted average diluted shares outstanding 47,573,019 46,903,896 47,408,995 46,648,928 FalconStor Software, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 GAAP loss from $(1,670,551) $(5,455,985) $(13,674,903) $(22,219,933) operations Add: Non-cash stock option 1,020,613 1,426,180 4,614,769 5,518,058 expense (1) Legal related 1,466,960 5,926,090 (326,408) 10,257,388 costs (3) Restructuring -- -- 770,749 822,320 costs (4) Non-GAAP income (loss) from 817,022 1,896,285 (8,615,793) (5,622,167) operations GAAP net loss $(2,346,276) $(6,114,804) $(14,984,321) $(23,368,283) Add: Non-cash stock option 1,020,613 1,426,180 4,614,769 5,518,058 expense, net of income taxes (2) Legal related 1,466,960 5,926,090 (326,408) 10,257,388 costs (3) Restructuring -- -- 770,749 822,320 costs (4) Non-GAAP net 141,297 1,237,466 (9,925,211) (6,770,517) income (loss) GAAP gross 80% 82% 80% 83% margin - Product Add: Non-cash stock option 0% 0% 0% 0% expense (1) Non-GAAP gross 80% 82% 80% 83% margin - Product GAAP gross margin - Support 65% 64% 63% 61% and Service Add: Non-cash stock option 1% 1% 1% 1% expense (1) Non-GAAP gross margin - Support 66% 65% 64% 62% and Service GAAP operating (7%) (21%) (18%) (27%) margin Add: Non-cash stock option 5% 6% 6% 7% expense (1) Legal related 7% 23% (0%) 12% costs (3) Restructuring 0% 0% 1% 1% costs (4) Non-GAAP 4% 7% (11%) (7%) operating margin GAAP Basic EPS $(0.05) $(0.13) $(0.32) $(0.50) Add: Non-cash stock option 0.02 0.03 0.10 0.12 expense, net of income taxes (2) Legal related 0.03 0.13 (0.01) 0.22 costs (3) Restructuring -- -- 0.02 0.02 costs (4) Non-GAAP Basic 0.00 0.03 (0.21) (0.15) EPS GAAP Diluted EPS $(0.05) $(0.13) $(0.32) $(0.50) Add: Non-cash stock option 0.02 0.03 0.10 0.12 expense, net of income taxes (2) Legal related 0.03 0.13 (0.01) 0.22 costs (3) Restructuring -- -- 0.02 0.02 costs (4) Non-GAAP Diluted 0.00 0.03 (0.21) (0.15) EPS Weighted average basic shares outstanding (GAAP and as 47,573,019 46,903,896 47,408,995 46,648,928 adjusted) Weighted average diluted shares outstanding (GAAP and as 47,573,019 47,199,799 47,408,995 46,648,928 adjusted) Footnotes: (1) Represents non-cash, stock-based compensation charges as follows: Three Months Ended Twelve Months Ended December 31, December 31, 2012 2011 2012 2011 Cost of revenues - Product $50 $319 $262 $2,960 Cost of revenues - Support 69,549 76,703 172,707 461,735 and Service Research and development 155,656 257,936 727,826 1,302,129 costs Selling and marketing 404,646 552,277 1,677,469 2,023,370 General and administrative 390,712 538,945 2,036,505 1,727,864 Total non-cash stock based $1,020,613 $1,426,180 $4,614,769 $5,518,058 compensation expense (1) 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 twelve months ended December 31, 2012 and 2011, the tax expense for both GAAP and Non-GAAP basis approximate the same amount. (2) Legal related costs represent expenses in connection with the Company's investigations, litigation and settlement related costs for each respective period presented. (3) Represents restructuring costs which were incurred during each respective period presented. CONTACT: FalconStor Software, Inc. Joanne Ferrara, Investor Relations 631-773-5813 email@example.com FalconStor Software Logo
FalconStor Software Announces Fourth Quarter and Full Year 2012 Results
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