FalconStor: Fiscal 4Q08 Financial Results

FalconStor Software, Inc. announced financial results for its fourth quarter and full year ended December 31, 2008.

Revenues for the fourth quarter of 2008 decreased 6% to $23.4 million, compared with $24.8 million for the same period a year ago. GAAP loss from operations for the quarter was $0.2 million, compared with operating income of $5.4 million in the fourth quarter of 2007. GAAP net income for the quarter was $0.6 million, or $0.01 per diluted share, compared with GAAP net income of $5.7 million, or $0.10 per diluted share, in the fourth quarter of 2007. Stock-based compensation expense was $2.5 million in the fourth quarter of 2008 and $1.7 million in the fourth quarter of 2007.

Non-GAAP income from operations was $2.3 million in the fourth quarter of 2008, compared with non-GAAP income from operations of $7.1 million in the fourth quarter of 2007. Non-GAAP net income was $2.0 million, or $0.04 per diluted share, in the fourth quarter of 2008, compared with $7.4 million, or $0.14 per diluted share, in the fourth quarter of 2007. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.

Revenues in the fourth quarter increased 19% compared with the previous quarter. GAAP operating results improved from a loss of $1.4 million in the third quarter to a loss of $0.2 million in the fourth quarter. GAAP net income increased to $0.6 million compared with a net loss of $1.6 million in the previous quarter. Non-GAAP operating income in the fourth quarter increased to $2.3 million compared with $0.3 million in the third quarter. Non-GAAP net income increased to $2.0 million or $0.04 per diluted share compared with $0.4 million or $0.01 per diluted share in the previous quarter. Stock-based compensation expense was $1.6 million in the third quarter of 2008.

For the year ended December 31, 2008, revenues increased 12% to $87 million compared with $77.4 million for the prior year. GAAP income from operations for 2008 was $1.0 million compared with $6.1 million in 2007. GAAP net income was $1.2 million, or $0.02 per diluted share for the year ended December 31, 2008, compared with net income of $12.7 million, or $0.24 per diluted share, in the same period a year ago. In 2008, the Company recorded a GAAP tax provision of $1.5 million compared with a tax benefit of $4.3 million in the prior year period. Stock-based compensation expense was $9.1 million in 2008 and $7.9 million in 2007.

Non-GAAP income from operations was $10.1 million for the year ended December 31, 2008, compared with non-GAAP income from operations of $14.0 million for the same period in 2007. Non-GAAP net income in 2008 was $7.8 million, or $0.16 per diluted share, compared with $16.2 million, or $0.30 per diluted share in the same period a year ago. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes, and also exclude a $4.5 million income tax benefit recorded in 2007.

"The difficult economic environment hurt our results for 2008. But we still believe we are well positioned for long term success both financially, as demonstrated by our increase in cash flows from operations and with our product portfolio. To cope with the challenging economy and constrained budgets, corporate IT must deliver extraordinary management and operating efficiency – creating an ideal opportunity for FalconStor’s TOTALLY Open Data Protection solutions," said ReiJane Huai, chairman and CEO of FalconStor Software. “Validated by elite Fortune 100 accounts and endorsed by strategic OEM partners, FalconStor solutions will continue to expand in key growth segments of the storage market – virtualization, CDP/replication, VTL, and file deduplication – by leveraging our unique product synergy and offering tangible business value that enriches customers’ revenues and bottom line."

The Company closed the quarter with $42.8 million in cash, cash equivalents, and marketable securities. Cash flow from operations for the full year was $18.2 million compared with $16.6 million in 2007. Deferred revenue increased 16% from the prior period year and at December 31, 2008 was $22.1 million. During the fourth quarter of 2008, the Company repurchased 2.1 million shares at a total purchase price of $5.2 million, or an average price of $2.48 per share. During 2008, the Company repurchased a total of 5.6 million shares at a total price of $33.9 million or an average price of $6.01 per share.

The Company also announced that its Board of Directors approved another increase in the size of its Stock Repurchase Program of an additional six million shares. As a result of this increase, the Company may repurchase up to 7.2 million additional shares.

For the year ending December 31, 2009,
the company anticipates:

• Revenues to be in the range of $96 million to $100 million
• Non-GAAP net income to be between $0.18 and $0.21 per diluted share, which excludes stock-based compensation, net of income taxes.

The pro forma effective tax rate is expected to be approximately 33% – 36%, which excludes the impact of stock-based compensation charges. Weighted average diluted shares are expected to be approximately 47 to 48 million shares.