FalconStor Reports Q4

MELVILLE, N.Y. -- FalconStor Software, Inc. (NASDAQ: FALC - News), the market leader in disk-based data protection solutions, today announced financial results for its fourth quarter and full year ended December 31, 2007.

Revenues for the fourth quarter of 2007 increased 23% to $24.8 million, compared with $20.2 million for the same period a year ago. GAAP income from operations for the quarter increased 114% to $5.4 million, compared with $2.5 million in Q4 2006. GAAP net income for the quarter was $5.7 million, or $0.10 per diluted share, compared with $2.8 million, or $0.06 per diluted share in Q4 2006. Stock-based compensation expense was $1.7 million in Q4 2007 and $2.3 million in Q4 2006.

Pro forma income from operations, which excludes stock-based compensation expense, increased to $7.1 million in the fourth quarter of 2007, compared with pro forma income from operations of $4.8 million in the fourth quarter of 2006. Pro forma operating margins increased to 29% in the fourth quarter of 2007, compared with pro forma operating margins of 24% in the same period a year ago. Pro forma net income increased to $7.4 million, or $.14 per diluted share, in Q4 2007 compared with $5.1 million, or $.10 per diluted share, in Q4 2006.

For the year ended December 31, 2007, revenues increased 41% to $77.4 million, compared with $55.1 million for the same period a year ago. GAAP income from operations for 2007 increased to $6.1 million, compared with a loss from operations of $4.7 million in 2006. GAAP net income for the year was $12.7 million, or $0.24 per diluted share, compared with a net loss of $3.4 million, or $0.07 per diluted share, in the same period a year ago. Stock-based compensation expense was $7.9 million in 2007 and $9.4 million in 2006.

Pro forma income from operations for the full year 2007 increased 200% to $14.0 million, compared with pro forma income from operations of $4.7 million in 2006. Pro forma operating margins increased to 18% in 2007, compared with pro forma operating margins of 9% in the same period a year ago. Pro forma net income increased to $16.2 million, or $.30 per diluted share, in 2007 compared with $6.0 million, or $.12 per diluted share, in 2006. Pro forma results for the full year exclude stock-based compensation for 2006 and 2007 and a $4.5 million income tax benefit recorded in Q3 2007.The Company closed the year with $62.9 million in cash, cash equivalents and marketable securities, as compared with $41.0 million as of the end of 2006. Deferred revenue at December 31, 2007 was $19.0 million.

The Company also announced that its Board of Directors approved an increase in the size of its Stock Repurchase Program, which increases the number of shares that may be repurchased from 2 million to 5 million shares. The Company has previously repurchased 1.2 million shares leaving an additional 3.8 million shares available to be repurchased. The repurchases may be made from time to time in open market transactions in such amounts as determined at the discretion of the Companys management. The terms of the stock repurchases will be determined by management based on market conditions.

For the year ended December 31, 2008, the Company currently anticipates:

The pro forma effective tax rate is expected to be approximately 35% - 38%, which excludes the impact of stock-based compensation charges. Weighted average diluted shares are expected to be approximately 54 to 55 million shares.“Our 2007 results demonstrate a solid foundation for scalable top and bottom line growth with continuing optimization of operating efficiency," said ReiJane Huai, Chairman and CEO of FalconStor. “We are looking forward to delivering another year of quality growth by leveraging FalconStor's award-winning technology, strong end user references, strategic OEM partnerships, market recognition, financial strength and, most importantly, the 400+ motivated and committed employees at FalconStor.”

FalconStor Software Inc.