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spk01: good afternoon and thank you for joining us to discuss falcon store software's q3 2022 earnings todd brooks falcon store's chief executive officer and vincent sita chief financial officer will discuss the company's results and activities and will then open the call to your questions the company would like to advise all participants that today's discussion may contain what some consider forward-looking statements These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are discussed in Falcon's Door's reports on Forms 10-K, 10-Q, and other reports filed with the Securities and Exchange Commission and in the company's press release issued today. During today's call, there will be discussions that include non-GAAP results. A reconciliation of the non-GAAP results to GAAP has been posted on Falcon Store's website at www.falconstore.com under Investor Relations. After the close of business today, Falcon Store released its Q3 2022 earnings. Copies of the earnings release and supplemental financial information are available on Falcon Store's website at www.falconstore.com. I'm now pleased to turn the call over to Todd Brooks.
spk00: All right, well, thank you, Clark. Appreciate that. And I'd like to thank everyone for taking your time to participate in our call today. Q3 was an important quarter for Falcon Storage. We grew total revenue quarter over quarter for the second straight quarter, delivered positive net income, added new customers through our partnership with IBM, and continue to grow our recurring revenue base. We are a trusted data protection innovator with well over 1,000 end-user customers and over an exabyte of data under management. We enable the world's most demanding managed service providers and enterprises to modernize their data backup and archival operations for the hybrid cloud world, protecting data across on-premises data centers, and public cloud environments. Migration to the cloud, data center rationalization, and increased leverage of outsourced managed services are top priorities for enterprise CIOs and are fundamental macro shifts to which our technology and market experience are well aligned. Our solutions deliver increased data security, provide for quick data recovery, including recovery from ransomware attacks, And our solutions accomplish these while driving down long-term data storage footprints by up to 95%. For fiscal year 2022, we implemented four key strategic initiatives as we continued our work to reinvent FalconStor. First, on generating consistent growth by expanding our industry-leading long-term data retention recovery product line and by creating new flexible and extensible data protection innovations that we believe will drive recurring revenue growth over the next decade second on sharpening our commercial and r d focus related to our business continuity driven data replication products to ensure that we are focused on those use cases which are important to our largest and most strategic customers third I'm beginning to generate growth via M&A. And then fourth, delivering constant or consistent profitability. As we set these initiatives out, we are excited by the growth markets that we are focused on and their ability to drive significant recurring revenue growth for Falcon Store. Data protection as a service, hybrid cloud, and managed IT services are growing quickly and are clear reflections of macro shifts in our industry to which Falcon Store technology and experience are well aligned. In fact, the data protection as a service market is predicted to grow by 31% annually to $104 billion in 2027. The worldwide hybrid cloud market is predicted to grow by 20% annually to $204 billion in 2027. And finally, the managed IT services market is predicted to grow by 8% annually to $355 billion in 2026. Our go-to-market focus on managed service providers and hybrid cloud partners like IBM will be key drivers for FalconStore to generate recurring revenue growth over the next several years. To this point, we are excited by our new cloud our new hybrid cloud reseller relationship with IBM that we announced last quarter to provide several new joint solutions which combine FalconStore StoreSafe VTL software with IBM Cloud Object Storage and IBM Power Virtual Server Cloud. We are even more thrilled to report that we secured several new customers and assisted several existing customers to expand their monthly usage through our relationship with IBM and Q3. Our joint solutions migrate data and applications and optimize data protection in the IBM Power Cloud. These solutions include, first, a cloud-native backup solution where enterprises running their applications in the Power Virtual Server Cloud can now utilize our joint solution to securely and efficiently back up to IBM Cloud Object Storage. Second, a cloud migration solution for enterprises needing to migrate their existing on-premises power applications to the IBM Power Virtual Server Cloud. AlkaStore StoreSafe software takes a secure snapshot and restores it to the cloud, maximizing application availability and security. And then finally, an advanced hybrid cloud backup solution for MSPs looking to use the cloud for a secure air-gapped off-site location. FalconStor and IBM deliver an on-premises virtual tape library solution with a cloud instance for secure and encrypted off-site backups. This partnership with IBM is a material step forward for FalconStor and should be a significant contributor to our long-term strategic goal to significantly increase hybrid cloud recurring revenue. Now moving on to our Q3 results. First, as we make the strategic shift from perpetual to recurring revenue, we continued to deliver annual recurring revenue or ARR growth during the quarter with a 4.5% year-over-year increase. we expect our ARR growth rate to accelerate further in the coming quarters. At the end of Q3, ARR represents 69% of our trailing 12-month total gap revenue. While this percentage may vary during the coming quarter, we are intentionally working to increase this percentage each quarter, just like we've done over the last four or five quarters. Next, we continue to focus or second, I should say, that total second, despite the fact that total GAAP revenue grew for a second consecutive quarter, our year-over-year total GAAP revenue decreased by 7% in Q3 of this year. As we continue to grow our recurring revenue, expand our results from IBM, though, we do expect to deliver year-over-year revenue growth in the next two quarters. Next, as we continue to focus on tightly managing our, or we do continue to focus on tightly managing our quarterly operating expenses, Q3 gap operating expenses decreased to 2.3 million, which represented a year-over-year improvement of 4% and a quarter-over-quarter improvement of 8%. Finally, due to our increasing revenue and tightly managed operating expenses, we delivered 200,000 in net gap income during the quarter. And while we work to deliver consistent growth each quarter, I couldn't be more excited by the progress the entire FalconStor team has made to accelerate our shift to the hybrid cloud solutions and secure relationships that will form the foundation of FalconStor's future growth and success. So at this point, I'll turn it over to Vince to provide a more detailed overview of our Q3 2022 results.
spk02: Thanks, Todd. So to reiterate some of the key numbers we just reviewed on the previous slides, if we look at the income statement summary on page nine. So again, our Q3 revenues were 3.1 million compared to 2.4 million in the previous quarter. So we increased 28%. And this compares to 3.3 million for the same period last year, so a decrease of 7%. Total operating expenses were 2.3 million compared to 2.5 million in the previous quarter, so a decrease of 8%. And compared to 2.4 million in the third quarter of 2021, a decrease of 4%. From a gap operating income, we generated $383,000 in Q3 2022. This compares to an operating loss of $508,000 in the previous quarter and a gap operating income of $449,000 in Q3 2021. And finally, from a net income perspective, we generated $221,000 in Q3 of this year compared to a net loss of $931,000 in the previous quarter. and a net income of $349,000 last year. If we turn to the balance sheet, so we ended the quarter with a cash balance of $1.7 million compared to $1.8 last quarter, June 30th, 2022, and compared to $3.5 million at September 30th, 2021. So therefore a decrease of 100,000 from the previous quarter Q2 2022, and a decrease of over Q3 of 2021 of 1.8 million. Looking at networking capital, so if we look at networking capital cash, which excludes contract assets and deferred revenues, but includes the redemption value of our term notes. So we ended at 900,000, a decline of $0.2 million from Q2 2022 and a decline of $2.9 million from Q3 2021. We closed the quarter with $2.4 million in accounts receivable, accounts payable and accrued expenses of $1.8 million and deferred revenues of $4.8 million. So given, if we turn to the next page, given our Q3 results, We are maintaining our full year 2022 guidance. So revenues in the range of 10 to 12 million adjusted EBITDA of minus five or 0.5 million to 1.2 and net income of minus 1.8 million to minus 0.5 million. Todd, I'm going to turn it back to you for any final comments.
spk00: Thank you, Vince. As I've mentioned, we couldn't be more excited by our new relationship with IBM and some of the early results and the number of clients that we've been able to secure in that relationship so far and how those have expanded. And we'll continue to work hard to grow that partnership significantly over the next couple of quarters. So with that, let me turn it back over to Clark and open up to see if we have any questions that we can answer.
spk01: Great. If anyone has questions, there's a little question dialogue that you can type them into. And if you can't see that, you may see on the right part of your screen a red rectangle with an arrow pointing to the right. If you click on that, it'll open up a little control panel where you ought to see the question dialogue. So if you can get to that, type in a question if you have one. I'll keep a lookout here and see if I see anything. Not seeing anything yet, Todd, so maybe we don't have any today.
spk00: All right. Well, thank you, Clark. And once again, thanks everyone for taking your time to join us today. We're excited by Q3 and looking forward to meeting again here in another quarter with our Q4 results. So thank you and I hope you have a great evening.
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