FalconStor: Preliminary Fiscal 4Q09 Financial Results

FalconStor Software, Inc. announced preliminary financial results for its fourth quarter and full year ended December 31, 2009.

Based on preliminary financial data, the Company expects fourth quarter revenue to be in the range of $21.5 to $22.0 million, and non-GAAP net loss per share to be between $0.02 and $0.03 per share. Full year revenue is expected to be in the range of $88.5 to $89.0 million, and non-GAAP earnings per share is expected to be $0.05 to $0.06, compared with its previous projection of $96 million in revenue and non-GAAP earnings of $0.18 per share. Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes. The Company advises investors not to continue to rely on any other aspects of its previously issued financial guidance for 2009.

The revenue shortfall in 2009 was mainly the result of lower than expected software license revenue from OEMs. On a year over year basis, gross software license revenue from OEMs decreased by approximately 24%, or $6.7 million. Three OEMs were responsible for most of this shortfall. During the fourth quarter of 2009, Hewlett Packard announced it was acquiring 3Com, the parent of H3C, one of the Company’s OEMs. The change of ownership caused a change in H3C’s historical licensing practices that resulted in revenue from H3C that was over $2 million lower in Q4 on a year over year basis. The ongoing delay of the proposed merger of Sun Microsystems, another of the Company’s OEMs, into Oracle, resulted in a shortfall in projected revenue from Sun. Revenues from EMC, our largest customer, were also below our expectations.

“Although we were disappointed with the revenue shortfall from our OEMs, we were pleased in the growth of our non-OEM business,” said ReiJane Huai, Chairman and Chief Executive Officer of FalconStor. “We have begun to see the positive results of our investments in nurturing the non-OEM business. In 2009, our non-OEM gross software license revenue increased 15% year over year. We expect continuing growth of our non-OEM business into 2010 and beyond by leveraging our competitive product portfolio, credible end-user references and committed channel partners on the worldwide basis.”

The Company will release final results for the fourth quarter and full year on Feb. 4, 2010.