FalconStor Software Reports Fourth Quarter and Full Year Results

FalconStor Software, Inc. (NASDAQ: FALC), the provider of TOTALLY Open^™ data protection solutions, today announced financial results for its fourth quarter and full year ended December 31, 2009.

Revenues for the fourth quarter of 2009 were $22.4 million, compared with $23.4 million for the same period a year ago. GAAP loss from operations for the quarter was $3.3 million, compared with a loss of $0.2 million in the fourth quarter of 2008. GAAP net loss for the quarter was $1.5 million, or $0.03 per basic share, compared with net income of $0.6 million, or $0.01 per diluted share, in the fourth quarter of 2008. Stock-based compensation expense was $2.1 million in the fourth quarter of 2009 and $2.5 million in the fourth quarter of 2008.

Non-GAAP loss from operations was $1.2 million in the fourth quarter of 2009, compared with operating income of $2.3 million for the same period a year ago. Non-GAAP net loss was $0.8 million or $0.02 per share in the fourth quarter of 2009, compared with net income of $2.0 million, or $0.04 per diluted share, in the fourth quarter of 2008. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.

For the year ended December 31, 2009, revenues increased 3 percent to $89.5 million, compared with $87.0 million for the same period a year ago. GAAP loss from operations for 2009 was $6.3 million compared with income from operations of $1.0 million in 2008. GAAP net loss was $3.1 million, or $0.07 per share for the year ended December 31, 2009, compared with net income of $1.2 million, or $0.02 per diluted share, in the same period a year ago. Stock-based compensation expense was $8.8 million in 2009 and $9.1 million in 2008.

Non-GAAP income from operations was $2.5 million for the year ended December 31, 2009, compared with $10.1 million in 2008. Non-GAAP net income was $2.8 million in 2009, or $0.06 per diluted share, compared with $7.8 million, or $0.16 per diluted share in the same period a year ago. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.

The Company closed the year with $41.8 million in cash, cash equivalents, and marketable securities. Cash flow from operations for the full year was $8.8 million. Deferred revenue at December 31, 2009 was $22.2 million.

“Though revenues for fiscal year 2009 fell short of projections, our revenues continued to grow in one of the slowest economies in decades,” said ReiJane Huai, chairman and CEO of FalconStor Software. "Our investment in global non-OEM channels has produced 15 percent annual software revenue growth by enabling our partners to deliver storage virtualization, deduplication and continuous data protection solutions with compelling price/performance ratio and profit margins. We are confident in our ability to accelerate sales and earnings growth by leveraging the channel momentum, strategic alliances, product innovations and credible enterprise references.”

“FalconStor is well positioned to deliver a comprehensive suite of data protection solutions,” said Jim McNiel, chief strategy officer of FalconStor Software. “The careful packaging and positioning of these technically advanced offerings will help to move FalconStor firmly into the $10 billion storage management market.”

The Company will host a conference call to discuss its final financial results on Thursday, Feb. 4, 2010, at 4:30 p.m. EST. To participate in the conference call, please dial:

To view the presentation, please copy and paste the following link into your browser and register for this meeting. Once you have registered for the meeting, you will receive an email message confirming your registration.

https://falconstor.webex.com/falconstor/j.php?ED=131600252&RG=1&UID

If you are unable to register via the Internet, please contact Joanne Ferrara, Investor Relations at 631-773-5813 or joanne.ferrara@falconstor.com.

A conference call replay is scheduled to be available beginning Feb. 4 at 6:30 p.m. EST through 11:59 p.m. EST on Feb. 9. To listen to the replay of the call, dial toll free: 1-800-406-7325 or International: +1-303-590-3030, passcode: 4202073, or visit our website at www.falconstor.com/investors.asp.

Non-GAAP Financial Measures

The non-GAAP financial measures used in this press release are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The Company’s management refers to these non-GAAP financial measures in making operating decisions because they provide meaningful supplemental information regarding the Company’s operating performance. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to the Company’s historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures (which should be viewed as a supplement to, and not a substitute for, their comparable GAAP measures) in this press release because we believe they are useful to investors in allowing for greater transparency into the supplemental information used by management in its financial and operational decision-making. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our Non-GAAP Operating Data GAAP Reconciliation, presented in this release.

About FalconStor

FalconStor Software, Inc. (NASDAQ: FALC) is the market leader in disk-based data protection. FalconStor delivers proven, comprehensive data protection solutions that facilitate the continuous availability of business-critical data with speed, integrity, and simplicity. The Company’s TOTALLY Open™ technology solutions, built upon the award-winning IPStor^® platform, include the industry leading Virtual Tape Library (VTL) with deduplication, Continuous Data Protector (CDP), File-interface Deduplication System (FDS), and Network Storage Server (NSS), each enabled with WAN-optimized replication for disaster recovery and remote office protection. FalconStor products are available from major OEMs and solution providers including 3Com, Acer, COPAN Systems, Data Direct Networks, Dynamic Solutions International, EMC, IBM, Pillar Data Systems, Spectra Logic, and Sun and are deployed by thousands of customers worldwide, from small businesses to Fortune 1000 enterprises.

FalconStor is headquartered in Melville, N.Y., with offices throughout Europe and the Asia Pacific region. For more information, visit www.falconstor.com or call 1-866-NOW-FALC (1-866-669-3252).

This press release includes forward-looking statements 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, FalconStor Software, and IPStor are registered trademarks, and TOTALLY Open is a trademark of FalconStor Software, Inc. in the US and other countries. All other company and product names contained herein may be trademarks of their respective holders.