FalconStor: Fiscal 3Q13 Financial Results

FalconStor Software, Inc. announced financial results for its third quarter ended September 30, 2013.

“FalconStor continued its stabilization and rebalancing efforts during the past quarter. We entered into a joint-development agreement to build our next generation product, we completed a preferred equity placement and we rebalanced our assets and our resources to align with the future focus of the company,” said Gary Quinn, president and CEO, FalconStor. “Our efforts this quarter met our internal objectives, but we are always striving to improve as we move forward.”

Financial and Business Highlights and Overview:

• Total revenues increased 5% compared with the previous quarter; non-GAAP operating loss improved to $1.6 million, compared with $4.2 million non-GAAP operating loss in the previous quarter.
• Closed the quarter with $29.5 million of cash, cash equivalents and marketable securities, compared with $21.9 million at June 30th.
• Closed an equity investment of $9.0 million from Hale Capital Partners, LP, on September 16, 2013.

In connection with this investment, Martin Hale Jr., was elected to the company’s board of directors on September 16, 2013.

Commenced a company-wide ‘rebalancing’ during the quarter to rationalize all of the costs of business. Based on these efforts, the company has eliminated costs, or identified costs to be eliminated in the coming months, totaling approximately $15 million to $18 million on an annualized basis across all regions and functions of the business. These costs consist of both personnel and non-personnel expenses which the company identified as not being core to its going forward business plan. The firm anticipates that it will continue to wind down certain costs during the fourth quarter and that we will incur additional restructuring costs during the fourth quarter.

Financials
Total revenues for the third quarter of 2013 were $14.7 million, a decrease of 14% from $17.1 million in the same period a year ago. GAAP loss from operations for the third quarter of 2013 was $4.2 million, compared with an operating loss of $3.6 million for the third quarter of 2012.

GAAP net loss for the quarter was $2.2 million compared with a net loss of $3.6 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 $2.3 million, or $0.05 per share, compared with $3.6 million, or $0.08 per share, for the same period a year ago.

Included in the operating results for the third quarter of 2013 and 2012 were expenses of $2.3 million and $0.8 million, respectively, related to restructuring charges, and $0.1 million and a benefit of $1.4 million, respectively, of investigation, litigation and settlement related costs.

In addition, included in net loss for the third quarter of 2013 was an income tax benefit of $2.1 million related to the reversal of uncertain tax positions as a result of the expiration of applicable statutes of limitation.

Non-GAAP loss from operations was $1.6 million for the third quarter of 2013, compared with non-GAAP loss from operations of $3.1 million for the same period a year ago. Non-GAAP net loss was $1.8 million, or $0.04 per share, in the third quarter of 2013, compared with a non-GAAP net loss of $3.1 million, or $0.07 per share, in the third quarter of 2012. Non-GAAP results exclude the effects of stock-based compensation, costs associated with the company’s investigations, litigation and settlement related costs, restructuring costs, certain tax items and the effects of preferred stock.

For the nine months ended September 30, 2013, total revenues were $44.0 million, a decline of 17% from $52.9 million for the same period a year ago.

GAAP loss from operations for the nine months ended September 30, 2013 was $12.6 million compared with a GAAP loss of $12.0 million for the nine months ended September 30, 2012. GAAP net loss was $11.8 million for the nine months ended September 30, 2013, compared with a loss of $12.6 million in the same period a year ago. Net loss attributable to common stockholders for the nine months was $11.9 million, or $0.25 per share, compared with $12.6 million, or $0.27 per share, for the same period a year ago.

Non-GAAP loss from operations was $8.7 million for the nine months ended September 30, 2013, compared with a loss of $9.4 million in 2012. Non-GAAP net loss was $10.0 million, or $0.21 per share, compared with a loss of $10.1 million, or $0.21 per share, in the same period a year ago.

The company closed the quarter with $29.5 million in cash, cash equivalents and marketable securities. Deferred revenue at September 30, 2013 was $25.3 million, compared with $24.1 million at December 31, 2012.