FalconStor Announces Q1 Results

MELVILLE, N.Y. -- FalconStor Software, Inc. (NASDAQ: FALC), the provider of TOTALLY Open network storage solutions, today announced financial results for its first quarter ended March 31, 2008.

Revenues for the first quarter of 2008 increased 33% to $21.8 million, compared with $16.3 million for the same period a year ago. GAAP income from operations for the quarter increased 306% to $1.8 million, compared with an operating loss of $0.9 million in Q1 2007. GAAP net income for the quarter was $1.3 million, or $0.03 per diluted share, compared with a net loss of $0.6 million, or $0.01 per diluted share, in Q1 2007. Stock-based compensation expense was $2.3 million in Q1 2008 and $2.2 million in Q1 2007. In Q1 2008, the Company recorded a tax provision of $1.0 million compared with a tax provision of only $0.2 million in Q1 2007.

Pro forma income from operations increased to $4.1 million in the first quarter of 2008, compared with pro forma income from operations of $1.3 million in the first quarter of 2007. Pro forma operating margins increased to 19% in the first quarter of 2008, compared with pro forma operating margins of 8% in the same period a year ago. Pro forma net income increased to $2.9 million, or $0.06 per diluted share, in Q1 2008 compared with $1.6 million, or $0.03 per diluted share, in Q1 2007. In Q1 2008, the Company recorded a pro forma tax provision of 38% or $1.8 million compared with a tax provision of only 11% or $0.2 million in Q1 2007. Pro forma results exclude the effects of stock-based compensation net of the related income taxes.

The Company closed the quarter with $56.8 million in cash, cash equivalents and marketable securities. During the first quarter of 2008, the Company repurchased a total of 1.8 million shares at a total purchase price of $14.5 million. Cash flows from operations for the first quarter of 2008 were $8.5 million.

For the year ending December 31, 2008, the Company still anticipates:

“The decision by a Fortune 15 global financial services firm to standardize on our clustered Virtual Tape Library (VTL) with deduplication in Q1 2008 underscores our solution´s technological lead and compelling ROI,” said ReiJane Huai, Chairman and CEO of FalconStor. “We will continue to leverage our market recognition and channel partnerships to drive revenue growth with optimal efficiency by cross-selling complementary solutions, including FalconStor´s deduplication technology, Continuous Data Protector™ (CDP), and others, through the enterprise channel, and by empowering our mid-range partners to deliver competitively packaged/priced storage appliances with quality margins and with a support infrastructure around the world.”

FalconStor Software Inc.