FalconStor: Fiscal 2Q12 Financial Results

FalconStor Software, Inc. announced financial results for its second quarter ended June 30, 2012.

Total revenues for the second quarter of 2012 were $16.5 million, compared with $19.6 million for the same period a year ago.

As a result of the company’s increased dependence on revenues outside North America, with overseas business now accounting for over 50% of the company’s total revenues, the recent slowness in Asian and European markets negatively impacted the company’s second quarter results.

As a result of the slower than anticipated recovery around the world, the company must realign its existing cost structure based on the declines in revenues it has experienced.

Accordingly, commencing in the third quarter, the company engaged in a cost-reduction initiative that is expected to result in approximately $10.0 million in gross annualized savings.

This action includes approximately a 7% reduction in existing workforce, the elimination of select positions, and other cost savings initiatives.

The cost reductions impact all levels and regions of the company and are designed to help streamline our operations and focus our efforts and resources more efficiently in the current environment.

The estimated cost of this action, which is expected to be completed by the end of the third quarter, is approximately $0.65 million to $0.85 million.

Also during the quarter, the company announced the resolution of the investigations by the United States Attorney’s Office for the Eastern District of New York and by the Securities and Exchange Commission. Total payments by the company to settle the investigations will equal $5.8 million.

"FalconStor is committed to innovation and the delivery of novel and disruptive data protection solutions," said Jim McNiel, president and CEO. "Our expense reductions address changing global market conditions and deliver a sustainable business model while preserving our ability to deliver new products to a demanding market."

GAAP loss from operations for the quarter was $6.3 million, compared with an operating loss of $6.0 million for the same period a year ago. GAAP net loss for the second quarter was $6.6 million, or $0.14 per share, compared with $5.9 million, or $0.13 per share in the second quarter of 2011. Included in the operating results for the second quarter of 2012 was $0.9 million of costs associated with the ongoing class actions and with the finalizing of the government investigations. The $0.9 million was comprised of $0.4 million for certain costs associated with the possible resolution of the class actions and $0.5 million in overall related legal fees. During the same period in 2011, the company had recorded $1.2 million of costs associated with the government investigations and related class actions, comprised of $0.5 million of legal fees and an accrual of $0.7 million for certain costs associated with the possible resolution of the then outstanding government investigations.

Non-GAAP loss from operations was $4.4 million in the second quarter of 2012, compared with a loss from operations of $3.4 million for the same period a year ago. Non-GAAP net loss was $4.7 million, or a loss of $0.10 per share, in the second quarter of 2012, compared with a net loss of $3.4 million, or $0.07 per share, in the second quarter of 2011. Non-GAAP results exclude the effects of stock-based compensation and costs associated with the company’s investigations, litigation and settlement related costs.

For the six months ended June 30, 2012, total revenues were $35.8 million, compared with $38.6 million for the same period a year ago. GAAP loss from operations for the six month period was $8.4 million compared with a loss of $11.6 million in 2011. GAAP net loss was $9.1 million, or $0.19 per share, for the six months ended June 30, 2012, compared with a loss of $11.9 million, or $0.26 per share, in the same period a year ago.

Non-GAAP loss from operations was $6.3 million for the six months ended June 30, 2012, compared with a loss of $5.2 million in 2011. Non-GAAP net loss was $7.0 million, or $0.15 per share, compared with a loss of $5.4 million, or $0.12 per share, in the same period a year ago.

The company closed the quarter with $33.6 million in cash, cash equivalents, and marketable securities, down $4.2 million from December 31, 2011. Deferred revenue at June 30, 2012 was $26.3 million, an increase of 2% compared with the same period a year ago.