FalconStor Software Announces Q3 Quarterly Results; Reports Continued Profitability and Positive Cash Flow; Teams with Additional Tier-1 OEM to Deliver Integrated VTL Solution.MELVILLE, N.Y. -- FalconStor Software, Inc. (Nasdaq: FALC FALC Frame And Line Interface Component (electrical engineering) FALC French and African Language and Culture Center ), a leading developer of network storage software solutions, today announced financial results for its third quarter ended September 30, 2005. The Company also announced that another major U.S.-based high-tech company with worldwide distribution and service capabilities signed an OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and agreement to begin selling a private-labeled version of FalconStor's VirtualTape Library. Revenues for the third quarter of 2005 increased 35% to $10.1 million, compared with $7.5 million for the same period a year ago. Net income for the quarter was $0.5 million, or $0.01 per share, compared with a net loss of $2.3 million, or $0.05 per share, for the same period a year ago. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. in the third quarter of 2004 included a litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement charge of $1.3 million and legal fees of $0.4 million, each associated with patent infringement patent infringement n. the manufacture and/or use of an invention or improvement for which someone else owns a patent issued by the government, without obtaining permission of the owner of the patent by contract, license or waiver. litigation that was resolved in the third quarter of 2004. For the nine months ended September 30, 2005, revenues increased 45% to $27.9 million, compared with $19.2 million for the same period a year ago. Net income for the nine month period was $0.6 million, or $0.01 per share compared with a net loss of $6.2 million, or $0.13 per share in the corresponding period a year ago. Operating expenses for the first nine months of 2004 included a litigation settlement charge of $1.3 million and legal fees of $1.0 million. For the third quarter of 2005, revenues increased 6% from $9.5 million in the second quarter of 2005 to $10.1 million in the third quarter of 2005. Net income for the quarter was $0.5 million compared with net income of $0.3 million in the previous quarter. The Company closed the quarter with $35.2 million in cash, cash equivalents and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has , a $0.9 million increase from the previous quarter. Deferred revenue at September 30, 2005, increased to $7.6 million, or 10%, compared with the balance at June 30, 2005, and by 80% compared with the same period a year ago. Gross margins for the third quarter of 2005 increased to 82% compared with 80% for the same period a year ago and were consistent with the previous quarter. "We are pleased that our VirtualTape Library (VTL See virtual tape library. ) software is enabling another Tier-1 OEM to enter the disk-based backup market with a compelling solution," said FalconStor Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. ReiJane Huai. "The selection of our VTL software to power the OEM's network storage solution is another endorsement of FalconStor's technology as best in the industry and further evidence of the expected growth of this market segment." Third Quarter Highlights: FalconStor continues to advance its product portfolio with new features, while expanding efforts to make its network storage solutions compatible with current and cutting edge technology. --FalconStor introduced an AES-based encryption The reversible transformation of data from the original (the plaintext) to a difficult-to-interpret format (the ciphertext) as a mechanism for protecting its confidentiality, integrity and sometimes its authenticity. Encryption uses an encryption algorithm and one or more encryption keys. service for its VirtualTape Library solution. The Secure Tape Option allows VTL customers to export data to physical tapes with on-the-fly encryption to guard against unauthorized access or misplacement mis·place tr.v. mis·placed, mis·plac·ing, mis·plac·es 1. a. To put into a wrong place: misplace punctuation in a sentence. b. while in transit to another location. --The company extended its support for enhanced backup and recovery, business continuity and disaster recovery to additional platforms. This includes VTL availability for the first time on the Sun Solaris 10 operating system operating system (OS) Software that controls the operation of a computer, directs the input and output of data, keeps track of files, and controls the processing of computer programs. , based on 64-bit extension technology, as well as expanded support of IPStor Enterprise Edition(R) for the soon to be released Microsoft SQL Server A relational DBMS from Microsoft that is a major component of the Windows Server System. It is Microsoft's high-end client/server database and is closely integrated with Microsoft Visual Studio and the Microsoft Office System. 2005. --FalconStor's IPStor Enterprise Edition software completed validation testing with Oracle Database environments under the Oracle Storage Compatibility Program (OSCP OSCP Online Certificate Status Protocol (digital certificates) OSCP Oil Spill Contingency Plan OSCP oligomycin sensitivity-conferring protein OSCP Office of Science Coordination and Policy (EPA) ). IPStor software and the company's VTL solution were also certified See certification. with the Dot Hill SANnet II line of storage systems. VTL certification was completed with VERITAS NetBackup software, now from Symantec, on the Sun Solaris, IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) AIX (Advanced Interactive eXecutive) IBM's Unix-based operating system which runs on its Intellistation workstations and pSeries, p5, iSeries and i5 server families. , Red Hat Linux Red Hat Linux, assembled by Red Hat, was a popular, "middle-aged" Linux distribution (not as old as Slackware but older than Ubuntu) upon its discontinuation in 2004.[1] Red Hat Linux 1.0 was released on November 3, 1994. , HP-UX HP's version of Unix that runs on its 9000 family. It is based on SVID and incorporates features from BSD Unix along with several HP innovations. (operating system) HP-UX - The version of Unix running on Hewlett-Packard workstations. and Windows platforms. --FalconStor further expanded and cultivated relationships with solutions integrators worldwide, including partnering with Bell Microproducts, Inc., a leading value-added provider of storage products and solutions, to deliver turnkey VTL and iSCSI Storage Server backup and recovery appliances for the small and medium business (SMB (1) (Small to Medium-sized Business) Also called "SME" (small to medium-sized enterprise), it refers to companies that are larger than the small office/home office (SOHO), but not huge. ) market. The company will host a conference call on Thursday, October 27 at 4:30 PM ET to discuss the results. To participate in the call, dial 1-800-240-7305 in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. or 303-262-2194 outside the United States. To view the synchronized syn·chro·nize v. syn·chro·nized, syn·chro·niz·ing, syn·chro·niz·es v.intr. 1. To occur at the same time; be simultaneous. 2. To operate in unison. v.tr. 1. slide presentation during the call, visit: https://falconstor.webex.com/falconstor/j.php?ED=87684432&UID (programming, database) uid - 1. user identifier. 2. unique identifier - of any sort, possibly following sense 1. Compare with SKU for sense-development. =37320232 Meeting Name: FalconStor Q3 2005 Earnings Meeting password: ipstor Meeting number: 481 989 093 To listen to a replay of the call beginning October 27 at 6:30 PM ET, dial 1-800-405-2236 in the United States or 303-590-3000 outside the United States, passcode 11042422#, or visit www.falconstor.com/investors.asp. About FalconStor FalconStor Software, Inc. (Nasdaq: FALC) is a leading developer of innovative network storage software that optimizes the protection and availability of enterprise and SMB data and applications, ensuring nonstop HP's brand name for its fault-tolerant servers, which range in size from four CPUs to 4,000 CPUs. The NonStop line was created by Tandem Computers, which was acquired by Compaq, which later became part of HP. business productivity while simplifying storage and backup management to reduce operational costs. FalconStor's award-winning solutions--IPStor(R) Enterprise Edition, VirtualTape Library, and iSCSI Storage Server--are available from major OEMs, system integrators, and resellers, and are deployed worldwide by governments, educational institutions, and Fortune 1000 enterprises across industries including aerospace, energy production, financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , healthcare, law, manufacturing, and telecommunications. FalconStor is headquartered in Melville, NY, with offices throughout Europe and the Asia Pacific regions including Paris, Tokyo and Taiwan. FalconStor is an active member of the Technical Support Alliance Network (TSANet), Storage Networking Industry Association An association of producers and consumers of storage networking products, whose goal is to further storage networking technology and applications. The Storage Networking Industry Association, or SNIA (SNIA (Storage Networking Industry Association, San Francisco, CA, www.snia.org) An organization devoted to the advancement of mission critical storage systems. Founded in 1997, its goal is to determine the standards that must be developed to allow hosts and storage systems to interact via ) and Fibre Channel Industry Association (FCIA FCIA See: Foreign Credit Insurance Association ). For more information, visit www.falconstor.com or call 1-866-NOW-FALC (866-669-3252). This press release includes forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 and IPStor are registered trademarks of FalconStor Software, Inc. All other company and product names contained herein may be trademarks of the respective holders.
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2005 2004
-----------------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 16,388,518 $ 15,484,573
Marketable securities 18,786,873 18,488,616
Accounts receivable, net 11,436,107 10,269,822
Prepaid expenses and other current
assets 688,810 629,036
-------------- -------------
Total current assets 47,300,308 44,872,047
-------------- -------------
Property and equipment, net 5,208,574 4,662,269
Goodwill 3,512,796 3,512,796
Other intangible assets, net 232,504 307,620
Other assets 2,093,413 2,719,460
-------------- -------------
Total assets $ 58,347,595 $ 56,074,192
============== =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,317,709 $ 821,433
Accrued expenses 3,218,653 3,501,034
Deferred revenue 5,731,717 4,097,279
-------------- -------------
Total current liabilities 10,268,079 8,419,746
Deferred revenue 1,854,303 1,290,496
-------------- -------------
Total liabilities 12,122,382 9,710,242
-------------- -------------
Commitments
Total stockholders' equity 46,225,213 46,363,950
-------------- -------------
Total liabilities and stockholders'
equity $ 58,347,595 $ 56,074,192
============== =============
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
(unaudited) (unaudited)
Revenues
Software license
revenue $7,007,075 $ 5,430,010 $19,940,026 $13,893,339
Maintenance revenue 1,972,037 1,332,179 5,293,478 3,197,234
Software services and
other revenue 1,077,553 707,810 2,710,784 2,121,361
---------- ----------- ----------- ------------
10,056,665 7,469,999 27,944,288 19,211,934
Operating expenses:
Amortization of
purchased and
capitalized software 189,472 347,027 605,472 1,171,325
Cost of maintenance,
software services and
other revenue 1,666,459 1,112,662 4,462,542 3,080,622
Software development
costs 3,007,337 2,271,437 8,438,473 6,612,280
Selling and marketing 3,814,540 3,532,531 11,298,883 10,247,147
General and
administrative 1,103,778 1,358,833 3,121,089 3,566,885
Litigation settlement - 1,300,000 - 1,300,000
---------- ----------- ----------- ------------
9,781,586 9,922,490 27,926,459 25,978,259
---------- ----------- ----------- ------------
Operating income
(loss) 275,079 (2,452,491) 17,829 (6,766,325)
---------- ----------- ----------- ------------
Interest and other
income 245,218 162,146 668,713 553,923
---------- ----------- ----------- ------------
Income (loss) before
income taxes 520,297 (2,290,345) 686,542 (6,212,402)
---------- ----------- ----------- ------------
Provision for income
taxes 37,418 2,738 49,387 15,279
---------- ----------- ----------- ------------
Net income (loss) $ 482,879 $(2,293,083) $ 637,155 $(6,227,681)
========== =========== =========== ============
Basic net income (loss)
per share $ 0.01 $ (0.05) $ 0.01 $ (0.13)
========== =========== =========== ============
Diluted net income
(loss) per share $ 0.01 $ (0.05) $ 0.01 $ (0.13)
========== =========== =========== ============
Weighted average basic
shares outstanding 47,720,496 47,054,294 47,615,182 46,852,779
========== =========== =========== ============
Weighted average
diluted shares
outstanding 50,531,012 47,054,294 50,715,162 46,852,779
========== =========== =========== ============
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