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FalconStor Software Reports Third Quarter Financial Results

MELVILLE, N.Y., Oct. 28, 2008—FalconStor Software, Inc. (NASDAQ: FALC), the provider of TOTALLY Open™ data protection solutions, today announced financial results for its third quarter ended September 30, 2008.  

Revenues for the third quarter of 2008 increased 6% to $19.6 million, compared with $18.5 million for the same period a year ago.  GAAP loss from operations for the quarter was $1.4 million, compared with operating income of $1.1 million in the third quarter of 2007.  GAAP net loss for the quarter was $1.6 million, or $0.03 per share, compared with GAAP net income of $6.3 million, or $0.12 per diluted share, in the third quarter of 2007.  In the third quarter of 2008, the Company´s GAAP tax expense was $0.5 million, compared with a tax benefit of $4.5 million in the third quarter of 2007.  Stock-based compensation expense was $1.6 million in the third quarter of 2008 and $2.1 million in the third quarter of 2007.  

“We remain confident in the performance of our products and our prospects for success,” said ReiJane Huai, Chairman and CEO of FalconStor. “FalconStor is well positioned to help IT departments under pressure in current conditions to deliver on their objectives, while reducing their operating costs and their capital expenditures. Our innovative data protection software, our strong balance sheet, and our ability to generate positive cash flow from operations, even in these difficult economic times, all point to long-term success.”    

Non-GAAP income from operations was $0.3 million in the third quarter of 2008, compared with non-GAAP income from operations of $3.2 million in the third quarter of 2007.  Non-GAAP net income was $0.4 million, or $0.01 per diluted share, in the third quarter of 2008, compared with $8.4 million, or $0.16 per diluted share, in the third quarter of 2007.  In the third quarter of 2008, the Company´s non-GAAP tax expense was $0.1 million, compared with a tax benefit of $4.5 million in the third quarter of 2007.  Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.

For the nine months ended September 30, 2008, revenues increased 21% to $63.6 million compared with $52.6 million for the same period a year ago.  GAAP income from operations for the nine-month period was $1.2 million, compared with $0.7 million in 2007.  GAAP net income was $0.6 million, or $0.01 per diluted share for the nine months ended September 30, 2008, compared with net income of $7.1 million, or $0.13 per diluted share, in the same period a year ago.  For the first nine months of 2008, the Company recorded a GAAP tax provision of $1.8 million compared with a tax benefit of $4.6 million in the prior year period.  Stock-based compensation expense for the nine month period was $6.6 million in 2008 and $6.2 million in 2007.      

Non-GAAP income from operations was $7.8 million for the nine months ended September 30, 2008, compared with non-GAAP income from operations of $7.0 million for the same period in 2007.  Non-GAAP net income for the first nine months of 2008 was $5.8 million, or $0.11 per diluted share, compared with $13.3 million, or $0.25 per diluted share in the same period a year ago. The Company recorded a non-GAAP tax expense for the nine month period of $3.2 million in 2008 compared with a tax benefit of $4.6 million in 2007.  Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.

The Company closed the quarter with $48.0 million in cash, cash equivalents, and marketable securities.  Cash flows from operations for the third quarter of 2008 were $4.4 million.  During the third quarter of 2008, the Company repurchased one million shares at a total purchase price of $7.4 million, or an average price of $7.37 per share.  During the first nine months of 2008, the Company repurchased a total of 3.6 million shares at a total price of $28.7 million or an average price of $8.07 per share.  

For the year ending December 31, 2008, the Company anticipates:

 -    Revenues to be in the range of $85 million to $87 million
 -    Non-GAAP net income to be between $0.12 and $0.14 per diluted share, which excludes stock-based compensation, net of income taxes.

The Company will host a conference call on Tuesday, October 28, 2008 at 4:30 p.m. EDT, to discuss the results. To participate in the conference call, please dial:

Toll Free: 1-866-249-6463
International: 1-303-262-2004

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=114390597&RG=1&UID=0
 
Meeting: FalconStor Q3 2008 Earnings
Meeting password: q3numbers
Meeting Number: 488 945 255

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 Oct. 28 at 6:30 p.m. EDT through 11:59 p.m. EDT on Oct. 31.  To listen to the replay of the call, dial toll free: 1-800-405-2236 or International: 1-303-590-3000, passcode: 11120958#, or visit our website at www.falconstor.com/company/investor-relations.

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 ProForma Condensed Consolidated Statements of Operations, presented in this release.

About FalconStor
FalconStor Software, Inc. (NASDAQ: FALC), #5 in Forbes´ 2008 list of America´s Fastest-Growing Technology Companies, is the market leader in disk-based data protection.  We deliver proven, comprehensive data protection solutions that facilitate the continuous availability of business-critical data with speed, integrity, and simplicity.  Our 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), Network Storage Server (NSS), and Replication option for disaster recovery and remote office protection.  Our products are available from major OEMs and solution providers including Acer, Brocade, COPAN Systems, EMC, H3C, IBM, MPC, Pillar Data Systems, 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.  FalconStor is an active member of the Storage Networking Industry Association (SNIA).  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 Continuous Data Protector and TOTALLY Open are 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.




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