FalconStor: Fiscal 1Q23 Financial Results

(in $ million)	1Q22	1Q23	Growth
Revenue	2.0	2.3	*11%*
Net income (loss)	(1.1)	(0.4)

Expanding Hybrid Cloud Momentum Fuels ARR Growth
• Generated 11% Y/Y increase in total GAAP revenue
• Generated 81% increase in total hybrid cloud ARR run-rate for 1FQ23 vs. 4FQ22
• Generated 23% increase in MSP-driven hybrid cloud ARR run-rate for 1FQ23 vs. 4FQ22

FalconStor Software, Inc. announced financial results for its first quarter of 2023, which ended on March 31, 2023.

“We are encouraged with the progress we made in 1FQ23, as our joint sales with IBM to deliver hybrid cloud data protection solutions to IBM customers continued to grow,” said Todd Brooks, CEO. “IBM’s hybrid cloud focus is a key element of its growth strategy, as detailed in each of their earnings announcements over the last several quarters. Our joint solutions enable IBM customers across the globe to optimize data protection within each of their operating environments, whether those environments run on-premises or in the cloud. In addition, our partnership with IBM is enabling MSPs to expand the backup-as-a-service offerings they provide to IBM and non-IBM customers alike, as more and more enterprises entrust MSPs to manage their IT environments.”

“While total revenue in 1FQ23 increased Y/Y by 11%, total revenue decreased by 11% compared to 4FQ22, as we continued our shift from perpetual revenue to annual recurring revenue within our legacy business and continued to ramp our hybrid cloud revenue. Our 81% increase in hybrid cloud ARR run-rate in 1FQ23 compared to 11% compared to continues to demonstrate early validation of our expanding partner sales since the formal launch of our IBM relationship at the beginning of 2F022,” he stated. “In addition, while we materially improved our net income compared to 1FQ22, we were not profitable in 1FQ23 and must continue to tightly manage operating expenses to produce consistent quarterly profitability as we ramp our hybrid cloud revenue.”

1FQ23 Financial Results
• Hybrid Cloud ARR Run-Rate: 81% increase compared to 4FQ22, and 394% increase Y/Y
• Ending Cash: $1.8 million, compared to $2.0 million in 4FQ22, and $3.4 million in 1FQ22
• Total Revenue: $2.3 million, compared to $2.5 million in 4FQ22, and $2.0 million in 1FQ22
• Total Cost of Revenue: $0.4 million, compared to $0.4 million in 4FQ22, and $0.4 million in 1FQ22
• Total Operating Expenses: $2.3 million, compared to $2.2 million in 4FQ22, and $2.7 million in 1FQ22
• GAAP Net Income (Loss): ($0.4) million, compared to $20 thousand in 4FQ22, and ($1.1) million in 1FQ22

Comments

Revenue in 1FQ23 at $2.3 million increased Y/Y by 11% and decreased by 11% compared to 4FQ22. That's the best yearly growth since 2FQ21 (see table below).

As mentioned during last earnings call for FY23, the software company has implemented 3 strategic initiatives, and it will go through these each time during earnings calls in 2023:

First, the initiative is generating consistent recurring revenue growth by expanding its differentiated hybrid cloud data protection leadership position for the tens of thousands of companies that operate IBM Power System environments.

Second, accelerating its recurring revenue growth by extending its IBM-centric hybrid cloud data protection position into Microsoft Azure, Google Cloud and AWS public cloud environments.

Third, continuing to control operating expenses, the firm delivers consistent profitability, limit its risk while it accelerates its hybrid cloud-focused recurring revenue base.

Fiscal period

Revenue
in $ million

Growth

FY04

28.7

FY05

41.0

43%

FY06

55.1

34%

FY07

77.4

41%

FY08

87.0

12%

FY09

89.5

FY10

82.8

-7%

FY11

82.9

FY12

75.4

-9%

FY13

58.6

-32%

FY14

46.3

-21%

FY15

48.6

FY16

30.3

-38%

FY17

25.2

-17%

FY18

17.8

-29%

FY19

16.5

-7%

FY20

14.8

-10%

1FQ21

3.8

20%

2FQ21

3.3

-7%

3FQ21

3.3

-25%

4FQ21

3.8

FY21

14.2

-4%

1FQ22

2.0

-47%

2FQ22

2.4

-27%

3FQ22

3.1

-7%

4FQ22

2.5

-31%

FY22

10.1

-28%

1FQ23

2.3

11%