FalconStor: Fiscal 1Q13 Financial Results

(in US$ million)	1Q12	1Q13
Revenues	19.4	15.3
*Growth*		-21%
Net income (loss)	(2.4)	(4.4)

FalconStor Software, Inc. announced financial results for its first quarter ended March 31, 2013.

Total revenues for the first quarter of 2013 were $15.3 million, a decrease of 21% compared with $19.4 million in the same period a year ago.

GAAP loss from operations for the first quarter of 2013 was $3.9 million, compared with an operating loss of $2.1 million for the first quarter of 2012. GAAP net loss for the quarter was $4.4 million, or $0.09 per share, compared with a net loss of $2.4 million, or $0.05 per share, for the same period a year ago. Included in the operating results for the first quarter of 2013 and 2012 were an expense of $0.1 million and a net reduction of $1.3 million, respectively, of investigation, litigation and settlement related costs.

Non-GAAP loss from operations was $2.9 million for the first quarter of 2013, compared with non-GAAP loss from operations of $1.9 million for the same period a year ago. Non-GAAP net loss was $3.4 million, or $0.07 per share, in the first quarter of 2013, compared with a non-GAAP net loss of $2.3 million, or $0.05 per share, in the first quarter of 2012. Non-GAAP results exclude the effects of stock-based compensation and costs associated with the company’s investigations, litigation and settlement related costs.

The company closed the quarter with $28.2 million in cash, cash equivalents and marketable securities. Deferred revenue at March 31, 2013, was $23.7 million, compared with $24.1 million at December 31, 2012.

"While governmental changes in three key Asia regions and continued economic malaise in Europe impacted our overall number, I am happy to report that we signed up more than 50 new logos in the quarter and we are rolling out a new demand generation program globally," said Jim McNeil, president and CEO of FalconStor. "Additionally, the increased interest in cloud computing has resulted in more activity surrounding our data migration capabilities. We fully expect our work in migration to have a positive impact on this year’s performance."

The company recently announced the promotion of Gary Quinn to COO and the hiring of Rob Zecha as chief product officer. The appointments of these two industry veterans were made to further drive the company’s global deployment of best practices in engineering and in sales and marketing.

Comments

Abstracts of the earnings call transcript:

Jim McNiel, president and CEO:
"Primarily, we suffered a significant setback in our AsiaPac region, a region that has historically had very strong continuous double-digit growth for us. It was under some pressure from tensions on the Korean Peninsula and governmental changes in Korea, Taiwan and China.
"In the European region, we continued to have sluggish performance, specifically in the Southern parts of Europe.
"On the near-term front, we are positioned to assist companies and enterprises to move their corporate data and applications into public and private clouds through our NSS technology and our migration services. We have developed relationships with Fujitsu and Dell to perform this function."

Louis Petrucelly, CFO:
"Our overall revenues fell well below our internal expectations.
"Product revenue from our OEMs decreased 81% or $600,000 compared with Q1 of 2012. This was due to a decrease in revenue from one of our largest OEM partners in China. This OEM underwent an internal reorganization in 2012, which disrupted their business operations, resulting in unpredictable performance. As we entered 2013, we continued to experience the unpredictable performance from this OEM, making it difficult to predict revenue on a quarter-over-quarter basis.
"Product revenue from our non-OEMs declined by 23% or $2.3 million compared with Q1 of 2012. All of our regions continued to be impacted by the uncertainties in the global markets, soft economy, competitive environments around securing market share and the transformational change in the industry.
"In our European markets, non-OEM product revenue was down approximately 25%, representing the largest decline of all of our regions year-over-year. The EMEA region continues to be one of our more adversely impacted regions, particularly in our southern European market, due to the overall uncertainty in the European marketplace and its financial markets. In AsiaPac, our non-OEM product revenue was down 19% year-over-year.
"In North America, non-OEM product revenue was down approximately 16% year-over-year, largely due to the impact of the current economic competitive environments."