FalconStor: Fiscal 3Q09 Financial Results

(in US$ millions)	3Q08	3Q09	9 mo. 08	9 mo. 09
Revenues	19.6	21.5	63.6	67.0
*Growth*		+10%		*+5%*
Net income (loss)	(1.6)	(2.0)	0.6	(1.6)

FalconStor Software, Inc. announced financial results for its third quarter ended September 30, 2009.

Revenues for the third quarter of 2009 increased 10% to $21.5 million, compared with $19.6 million for the same period a year ago. GAAP loss from operations for the quarter was $2.5 million, compared with a loss of $1.4 million in the third quarter of 2008. GAAP net loss for the quarter was $2.0 million, or $0.05 per share, compared with a loss of $1.6 million, or $0.03 per share, in the third quarter of 2008. Stock-based compensation expense was $2.2 million in the third quarter of 2009 and $1.6 million in the third quarter of 2008.

Non-GAAP loss from operations was $0.2 million in the third quarter of 2009, compared with operating income of $0.3 million in the third quarter of 2008. Non-GAAP net income was $0.1 million in the third quarter of 2009, or breakeven on a per share basis, compared with $0.4 million, or $0.01 per diluted share, in the third quarter of 2008. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.

For the nine months ended September 30, 2009, revenues increased 5% to $67.0 million, compared with $63.6 million for the same period a year ago. GAAP loss from operations for the nine month period was $3.0 million compared with income from operations of $1.2 million in 2008. GAAP net loss was $1.6 million, or $0.04 per share for the nine months ended September 30, 2009, compared with net income of $0.6 million, or $0.01 per diluted share, in the same period a year ago. Stock-based compensation expense was $6.7 million in 2009 and $6.6 million in 2008.

Non-GAAP income from operations was $3.7 million for the nine months ended September 30, 2009, compared with $7.8 million in 2008. Non-GAAP net income was $3.6 million, or $0.08 per diluted share, compared with $5.8 million, or $0.11 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.

The Company generated $9.6 million in cash flow from operations in the third quarter and closed the quarter with $46.9 million in cash, cash equivalents and marketable securities. Deferred revenue at the end of the quarter was $20.2 million.

"The increasing level of field activities with industry and channel partners is a recognition of our ability to reduce operating costs for our customers and to optimize business continuity with Totally Open data protection solutions," said ReiJane Huai, chairman and CEO of FalconStor Software. "We will continue to invest in sales, marketing and support infrastructure to bolster our brand and to accelerate business momentum through the channel."

Comments

Abstracts of the earnings call transcript:

ReiJane Huai, CEO:

"As the case in point, our North America sales team close a million dollar deal with a major system integrator in Q1 defeating all the major storage hallway vendors entirely due to our software's unique integrated capabilities to maximize utilization by a factor of 10 through space additions, [net peak], snapshots and offer efficiency a factor of 5 by leveraging our on win optimize always on replication."

Bernie Wu, VP business development:

"Regarding FalconStor CDP and NSS, we continue to work on ramping up our median to channel programs with HP, Sun and select tier-two partners such as Pillar Data Systems.
"We are now engaged with several system integrators focused on the public sector including CSC, CACI, Booz Allen, Northrop Grumman on both civilian and Department of Defense opportunities and we have found that FalconStor's vision for storage infrastructure in the datacenter is well aligned with the Federal IT initiatives."

James Weber, CFO:

"The revenue from our non-OEM business grew as the percentage of total revenue representing 64% of our total revenue compared with 58% in the same period a year ago. EMC accounted for 30% of our total revenue and Sun was 11% of our total revenue.
"We increase our headcount from 439 at the end of Q1 2008 to 521 at the end of Q1 2009.
"Based in our Q1 results, we believe we are on track to achieve our previous full year guidance of revenues in the range of $96 million to $100 million and non-GAAP EPS in the range of $0.18 to $0.21 per share excluding the effect of stock-based compensation net of taxes.
"VTL and deduplication combined are still about 50% of our business as the percentage of revenue maybe down compared to last year and that is really just we are seeing a lot of interest in growth on the CDP side and the NSS side and if you look at CDP and NSS, both of those are pretty fairly even between the other 50%."