FalconStor Software Reports Third Quarter Financial Results

FalconStor Software, Inc. (NASDAQ: FALC), the provider of disk-based data protection solutions, today announced financial results for its third quarter ended September 30, 2012.

Overview

Total revenues for the third quarter of 2012 were $17.1 million, compared with $18.9 million for the same period a year ago, a decline of 9%. Total revenues for the third quarter of 2012 increased 4% compared with the second quarter of 2012.

The global macroeconomic weakness continues to factor in soft IT spending, lower business confidence, and uncertainty in the marketplace, which has resulted in lower than anticipated revenues for the quarter.

“While our revenues fell short of our expectations, we are pleased that we were able to achieve sequential revenue growth during a difficult macro environment,” said Jim McNiel, president and CEO of FalconStor. “The uncertainty surrounding the global marketplace continues to cause disruptions in our business, specifically with budget freezes, elongated sales cycles, or, in some cases, lost deals due to competitive pricing and sales strategies. Finally, we believe that the steps we took during the third quarter to reduce our operating expenses in response to the current environment have left us well-positioned to execute on our plan to invest in our existing and our new product initiatives.”

Retention of Financial Advisor

FalconStor has retained the investment banking firm Wells Fargo Securities, LLC as its exclusive financial advisor to assist the Company in exploring and evaluating strategic alternatives to maximize stockholder value. The Company intends to disclose developments regarding the process only when or if the Board has approved a specific transaction.

Financials

GAAP loss from operations for the quarter was $3.6 million, compared with an operating loss of $5.1 million for the same period a year ago. GAAP net loss for the third quarter was $3.6 million, or $0.08 per share, compared with $5.4 million, or $0.12 per share in the third quarter of 2011. Included in the operating results for the third quarter of 2012 was a net reduction of $1.4 million of investigation, litigation, and settlement costs. The net reduction of $1.4 million resulted from the Company recording a receivable in the third quarter for the recovery of $1.1 million of previously accrued legal fees and $0.4 million of certain costs previously accrued associated with the class action and derivative suits, as a result of a settlement reached with one of our insurance carriers in October 2012. These amounts were partially offset by $0.1 million of overall legal fees not recoverable through insurance. During the same period in 2011, the Company had recorded $0.5 million of costs associated with the then outstanding government investigations and related class actions, which was comprised of overall legal fees.

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