FalconStor Software Announces First Quarter 2014 Results

FalconStor Software Announces First Quarter 2014 Results

MELVILLE, N.Y., April 29, 2014 (GLOBE NEWSWIRE) -- FalconStor Software, Inc.
(Nasdaq:FALC), a market leader in data protection and migration, today
announced financial results for its first quarter ended March 31, 2014.

"In the first quarter of 2014 the FalconStor team continued to achieve the
internal goals that we set for ourselves last year. Virtually all of our
metrics for bookings, deferred revenue, cash flow and expense control met the
targets that we put in place in the previous quarter," said Gary Quinn,
President and CEO of FalconStor. "We continue to execute our business plan for
2014: To increase our total bookings, while being cost conscious and
preserving our cash. We are gaining momentum and we remain optimistic for the
future. Among the highlights of the quarter was the first delivery of our new
unified technology platform-based approach to data management, on which we
will continue to build."

Financial and Business Highlights and Overview:

  *BOOKINGS:

       *Q1 2014 bookings totaled $14.4 million compared with $14.8 million in
         Q1 2013 and $16.3 million in Q4 2013.

  *DEFERRED REVENUE:

       *Deferred revenue as of March 31, 2014 totaled $31.9 million which was
         an increase of 34% compared with March 31, 2013, and an increase of
         7% compared with December 31, 2013.

  *CASH:

       *The Company achieved positive cash flow from operations on a GAAP
         basis in Q1 2014 of $0.3 million compared with cash used in
         operations of ($1.8) million in Q1 2013 and cash used in operations
         of ($3.6) million in Q4 2013;
       *Closed the quarter with $27.9 million of cash, cash equivalents and
         marketable securities, compared with $28.1 million at December 31,
         2013;
       *During the first quarter of 2014;

            *The Company made $0.6 million in payments associated with the
              company-wide "rebalancing" which commenced during the third
              quarter of 2013; and
            *The Company made $0.2 million in payments related to the
              preferred stock dividends accrued for at December 31, 2013.

  *Non-GAAP EXPENSES and MARGINS:

       *Non-GAAP expenses totaled $13.9 million in Q1 2014 compared with
         non-GAAP expenses of $18.2 million in Q1 2013 and non-GAAP expenses
         of $13.8 million in Q4 2013;
       *Non-GAAP gross margins were 78% in Q1 2014 compared with non-GAAP
         gross margins of 72% in Q1 2013 and non-GAAP gross margins of 78% in
         Q4 2013.

  *OTHER ITEMS

       *The Company launched its Optimized Backup and Deduplication Solution
         version 8.0 - the first delivery of the Company's new unified
         technology platform-based approach to data management.

Financials

Total revenues for the first quarter of 2014 were $12.0 million compared with
$15.3 million in the same period a year ago. GAAP loss from operations for the
first quarter of 2014 was narrowed to $2.6 million, compared with an operating
loss of $3.9 million for the first quarter of 2013. GAAP net loss for the
quarter improved to $2.8 million compared with a net loss of $4.4 million for
the same period a year ago. Net loss attributable to common stockholders for
the quarter, which includes the effects of the accretion to redemption value
of the Series A preferred stock and the accrual of preferred stock dividends,
was $3.1 million, or $0.06 per share, compared with $4.4 million, or $0.09 per
share, for the same period a year ago. Included in the operating results for
the first quarter of 2014 and 2013 were expenses of $0.1 million of
investigation, litigation and settlement related costs. In addition, included
in net loss for the first quarter of 2014 was $0.2 million related to
restructuring charges.

Non-GAAP loss from operations narrowed to $1.9 million for the first quarter
of 2014, compared with non-GAAP loss from operations of $2.9 million for the
same period a year ago. Non-GAAP net loss improved to $2.1 million, or $0.04
per share, in the first quarter of 2014, compared with a non-GAAP net loss of
$3.4 million, or $0.07 per share, in the first quarter of 2013. Non-GAAP
results exclude the effects of stock-based compensation, costs associated with
the Company's investigations, litigation and settlement related costs,
restructuring costs and the effects of preferred stock.

The Company closed the quarter with $27.9 million in cash, cash equivalents
and marketable securities. Cash flow from operations for the first quarter of
2014 was $0.3 million compared with cash used in operations of ($1.8) million
during the same period in 2013. Deferred revenue at March 31, 2014 was $31.9
million, compared with $29.8 million at December 31, 2013.

Conference Call

The Company will host a conference call to discuss its financial results on
Tuesday, April 29, 2014 at 4:30 p.m. EDT. To participate in the conference
call, please dial:

Toll Free: 1-888-549-7880
International: +1-480-629-9770

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=205796657&RG=1&UID

Meeting: FalconStor Q1 2014 Earnings
Meeting password: q1numbers14
Meeting Number: 760793298

If you are unable to register via the Internet, please contact Melissa Keir,
Investor Relations at 631-773-4334 or melissa.keir@falconstor.com.

A conference call replay will be available beginning April 29 at 6:30 p.m. EDT
through 11:59 p.m. EDT on May 6. To listen to the replay of the call, dial
toll free: 1-800-406-7325 or International: +1-303-590-3030, passcode:
4678966, 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) restructuring costs, (iii) effects of our Series A Preferred Stock
and (iv) noncash stock-based compensation charges and any potential tax
effects. 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 transforming how enterprises move,
store, protect and optimize data. Founded in 2000, FalconStor offers an
award-winning platform for data migration, business continuity, disaster
recovery, optimized backup and deduplication. FalconStor helps maximize data
availability and system uptime to ensure nonstop business productivity, while
simplifying data management to reduce operational costs. Our open, integrated
software solutions reduce vendor lock-in and give enterprises the freedom to
choose the applications and hardware components that make the best sense for
their business. FalconStor solutions are available and supported by OEMs, as
well as leading system integrators and resellers worldwide. 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 (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 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 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
                                                           
                                             March 31, 2014 December 31, 2013
                                             (unaudited)    
Assets                                                      
Current assets:                                             
Cash and cash equivalents                     $17,493,097  $19,288,340
Restricted cash                               750,000        750,000
Marketable securities                         9,645,934      8,073,108
Accounts receivable, net                      9,715,785      11,150,323
Prepaid expenses and other current assets     2,421,076      1,636,891
Inventory                                     652,346        919,390
Deferred tax assets, net                      358,092        358,092
Total current assets                          41,036,330     42,176,144
Property and equipment, net                   3,093,740      3,317,344
Deferred tax assets, net                      56,059         49,651
Software development costs, net               1,693,772      1,796,075
Other assets, net                             1,469,865      1,549,255
Goodwill                                      4,150,339      4,150,339
Other intangible assets, net                  160,579        179,596
Total assets                                  $51,660,684  $53,218,404
Liabilities and Stockholders' Equity                        
Current liabilities:                                        
Accounts payable                              $1,282,032   $1,024,180
Accrued expenses                              7,414,251      8,658,863
Deferred tax liabilities, net                 18,005         18,005
Deferred revenue, net                         19,370,270     18,148,268
Total current liabilities                     28,084,558     27,849,316
Other long-term liabilities                   587,427        617,300
Deferred tax liabilities, net                 199,791        193,705
Deferred revenue, net                         12,536,651     11,602,177
Total liabilities                             41,408,427     40,262,498
Commitments and contingencies                               
Series A redeemable convertible preferred     6,852,954      6,737,578
stock
Total stockholders' equity                    3,399,303      6,218,328
Total liabilities and stockholders' equity    $51,660,684  $53,218,404
                                                           

FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                                                              
                                                Three Months Ended March 31,
                                                2014           2013
Revenues:                                                      
Product revenues                                 $4,963,059   $7,759,456
Support and services revenues                    7,038,440      7,525,361
Totalrevenues                                   12,001,499     15,284,817
Cost of revenues:                                              
Product                                          575,124        1,299,654
Support and service                              2,099,251      3,008,403
Total cost of revenues                           2,674,375      4,308,057
Gross profit                                     $9,327,124   $10,976,760
Operating expenses:                                            
Research and development costs                   3,348,795      4,648,609
Selling and marketing                            5,888,466      6,840,571
General and administrative                       2,391,410      3,247,067
Investigation, litigation, and settlement        111,711        114,066
related costs
Restructuring costs                              223,573        —
Total operating expenses                         11,963,955     14,850,313
Operating loss                                   (2,636,831)    (3,873,553)
Interest and other income (loss), net            50,108         (330,790)
Loss before income taxes                         (2,586,723)    (4,204,343)
Provision for income taxes                       215,075        176,102
Net loss                                         $(2,801,798) $(4,380,445)
Less: Accrual of Preferred stock dividends       186,904        —
Less: Accretion to redemption value of Series A  115,376        —
preferred stock
Net loss attributable to common stockholders     $(3,104,078) $(4,380,445)
Basic net loss per share attributable to common  $(0.06)      $(0.09)
stockholders
Diluted net loss per share attributable to       $(0.06)      $(0.09)
common stockholders
Weighted average basic shares outstanding        48,031,737     47,862,834
Weighted average diluted shares outstanding      48,031,737     47,862,834
                                                              

FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
                                                              
                                                Three Months Ended March 31,
                                                2014           2013
GAAP loss from operations                        $(2,636,831) $(3,873,553)
Non-cash stock option expense (1)                412,661        890,735
Legal related costs (3)                          111,711        114,066
Restructuring costs (4)                          223,573        —
Non-GAAP loss from operations                    $(1,888,886) $(2,868,752)
                                                              
GAAP net loss attributable to common             $(3,104,078) $(4,380,445)
stockholders
Non-cash stock option expense, net of income     412,661        890,735
taxes (2)
Legal related costs (3)                          111,711        114,066
Restructuring costs (4)                          223,573        —
Effects of preferred stock (5)                   302,280        —
Non-GAAP net loss                                $(2,053,853) $(3,375,644)
                                                              
GAAP gross margin                                78%            72%
Non-cash stock option expense (1)                0%             0%
Non-GAAP gross margin                            78%            72%
                                                              
GAAP gross margin - Product                      88%            83%
Non-cash stock option expense (1)                0%             0%
Non-GAAP gross margin - Product                  88%            83%
                                                              
GAAP gross margin - Support and Service          70%            60%
Non-cash stock option expense (1)                0%             1%
Non-GAAP gross margin - Support and Service      70%            61%
                                                              
GAAP operating margin                            (22)%          (25)%
Non-cash stock option expense (1)                3%             6%
Legal related costs (3)                          1%             1%
Restructuring costs (4)                          2%             0%
Non-GAAP operating margin                        (16)%          (19)%
                                                              
GAAP Basic EPS                                   $(0.06)      $(0.09)
Non-cash stock option expense, net of income     0.01           0.02
taxes (2)
Legal related costs (3)                          0.00           0.00
Restructuring costs (4)                          0.00           0.00
Effects of preferred stock (5)                   0.01           0.00
Non-GAAP Basic EPS                               $(0.04)      $(0.07)
                                                              
GAAP Diluted EPS                                 $(0.06)      $(0.09)
Non-cash stock option expense, net of income     0.01           0.02
taxes (2)
Legal related costs (3)                          0.00           0.00
Restructuring costs (4)                          0.00           0.00
Effects of preferred stock (5)                   0.01           0.00
Non-GAAP Diluted EPS                             $(0.04)      $(0.07)
                                                              
Weighted average basic shares outstanding (GAAP  48,031,737     47,862,834
and as adjusted)
Weighted average diluted shares outstanding      48,031,737     47,862,834
(GAAP and as adjusted)
                                                              

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

                                               Three Months Ended March 31,
                                               2014           2013
Cost of revenues - Product                      $ —            $49
Cost of revenues - Support and Service          21,883         50,256
Research and development costs                  88,799         134,910
Selling and marketing                           162,187        284,038
General and administrative                      139,792        421,482
Total non-cash stock based compensation expense $412,661     $890,735
                                                             

    Represents the effects of non-cash stock-based compensation expense
(2) recognized in accordance with the FASB Accounting Standards Codification,
   Topic 718, net of related income tax effects. For the three months ended
    March 31, 2014 and 2013, the tax expense for both GAAP and Non-GAAP basis
    approximate the same amount.
   
    Legal related costs represent expenses in connection with the Company's
(3) investigations, litigation and settlement related costs for each
    respective period presented.
   
(4) Represents restructuring costs which were incurred during each respective
    period presented.
   
(5) Represents the effects of the accretion to redemption value of the Series
    A preferred stock and accrual of preferred stock dividends.

CONTACT: For more information, contact:
         FalconStor Software, Inc.
         Melissa Keir, Investor Relations
         631-773-4334
         melissa.keir@falconstor.com

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