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).     Follow us on Twitter – Watch us on YouTube – Connect with us on LinkedIn  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  FalconStor Software Logo maroon  
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