FalconStor Software, Inc.

All right. Thank you, Clark.

I appreciate that and I'd also like to thank everyone for taking your time to participate in our call today. As we've reviewed during our last two earnings calls, we implemented four key strategic initiatives for 2020.

First, on generating consistent growth, by expanding our industry-leading long-term archive retention and reinstatement product line and creating new, flexible and extensible data storage innovations that we believe will drive our growth over the next decade. Then second, on increasing our commercial investment and focus to regions where we have demonstrated our ability to grow and our ability to win.

Then third, on sharpening our commercial and R&D focus related to our business continuity driven data replication products to ensure we are focused on those use cases which are important to our largest and most strategic enterprise customers. Then finally, on delivering consistent operating profitability.

Our strategic focus as a result and obviously then our resulting set of products are pointed at a market, which has been reported by verified market research to be currently sized at approximately $62.8 billion and predicted to grow at a compounded annual growth rate of 15.5% through 2026. This growth is being driven by three factors.

First, on an explosion of raw, on the raw amount of data being generated by various digital technologies and then second, on dramatic increase in innovative data storage options whether they be located in a traditional data center, a private cloud or a public cloud. Then finally, on the ever-expanding need to retain data for lengthy periods of time to ensure legal and regulatory compliance.

This dramatic growth in the capacity of data captured and stored is driving the need for enterprises to cost-effectively, securely and intelligently manage this data perhaps on ways that they've never had to contemplate managing this type of data in the past. In fact, according to IDC up to 75% of data managed by an enterprise is directly related to routine data archive.

Our technology allows an enterprise to leverage existing archive policies and procedures, while ensuring the most stringent archive windows are met, data storage capacity is reduced by up to 95% and Cloud Object Storage alternatives such as Wasabi, AWS, the Hitachi Content Platform or HCP, Microsoft Azure, Google Cloud and IBM COS are available for improved data storage efficiency. I continue to be very excited about this market and the business value that we at FalconStor deliver to our complex enterprise customers.

For the balance of today's call, we will elaborate on each of these key strategic initiatives and provide a detailed review of our Q2 financial results. Finally, we will open the phone line for any questions you may have.

If you would like to ask a question please use the question area within the webinar panel to enter your question and then once we open the phone lines, we'll be happy to call upon you to ask your question live. With that let's dive into some of the Q2 result highlights.

You know, the global COVID pandemic continues to be at the top of our minds, as our thoughts go out to everyone that has been impacted by its spread. The safety of our employees has been at the top of our mind, has been one of our top priorities, as is ensuring that we are delivering outstanding value to our customer -- our global customers and partners.

Despite the uncertainty and the disruptions caused by COVID-19, we are very encouraged by the strong operating performance that we had, in Q2. First during the quarter we generated an 11% year-over-year increase, in our global sales bookings.

This increase was driven by a 251%, increase in new customer bookings, within our core markets of the Americas, EMEA, Southeast Asia, Korea and Japan. New customer wins in the Americas and EMEA were especially strong and the majority of our global wins were in the health care, technology and financial services industries.

Second then, despite our strong sales and bookings results and growth, total recognized GAAP revenue actually declined year-over-year by 12.5%. That was primarily driven by a decline in recurring maintenance revenue, in our non-core markets, which include China.

Over the next several quarters we do expect, our core market -- our core market results I should say to begin producing global revenue year-over-year increases, as our non-core market revenue is strategically replaced. Third then, the decisions that we made back at the beginning of the quarter, to implement a proactive expense reduction plan, to hedge against potential COVID-19 business, combined in with our strong sales bookings allowed us to generate $407,000 in GAAP net income, during the quarter which was a 134.7% year-over-year increase.

Fourthly then, during the quarter we also secured our first, StorSafe customer. StorSafe, which we launched back at the beginning of the quarter, is our newest patent-pending long-term archive retention and reinstatement product, which leverages the power and simplicity of industry-standard container technology, to enable persistent, long-term archive storage.

StorSafe dramatically improves archive data portability, accessibility, security and integrity validation, especially as it relates to multi-cloud data storage leverage. We believe this will create a game-changing capability that solves age-old challenges in data usability and portability, resulting in a full spectrum of archived data storage options available to our enterprise customers to efficiently utilize, essentially any storage environment, while ensuring that data security and efficient archive access.

Finally then, we ended the quarter with a $500,000 increase, in our cash position, compared to the end of Q1, 2020. So all in all, I am very pleased with the results our team produced in Q2 and with the support and the encouragement -- and the engagement, I should say we are seeing with our global partner network.

I'm also excited by their Customer and Industry analysts' response to our innovative StorSafe solution, which is driving strong new demand for FalconStor products. Despite our strong performance in Q2, we realize that we've got to keep a very close eye out for any disruptions that are being caused or that could potentially be caused for us and our customers by COVID-19.

Just a few points on what we're seeing as it relates to COVID-19 impacts. First, to help protect the health of our employees and their families, we continue to ask the majority of them to work from home and we'll continue to do that for the foreseeable future.

Second, unfortunately despite the disruption that many industries are experiencing, our customer and partner based continue to invest in the business-critical area of enterprise data protection in which we target our solutions. Especially within verticals such as financial services, health care and technology.

Third then, fortunately, our Q3 pipeline continues to be strong despite the COVID disruptions. In fact, our results from July were very strong and we are continuing to be encouraged by what we're seeing.

Nonetheless, we realize that future commercial delays are certainly possible as a result of COVID as companies around the world continue to deal with prolonged impacts and so, we'll keep our eyes open and we'll make sure that we'll adjust in the operating plans necessary so that we can continue to deliver positive results. I mentioned that our customers and our partners are continuing to invest in the area of data protection and one of the reasons that we've had strong results is, because of the products that we have in the segments within data protection that they play.

So, as you might remember, our products are utilized by enterprises in managed service providers across the globe and they address two key areas of enterprise data protection. First, long-term archive retention statements and then secondly, business continuity driven data replication.

Our products are software defined, which means that our technology allows our solutions to be hardware, cloud and source data-agnostic giving our customers maximum leverage of the existing hardware and software investments. Our innovative integration in the modern cloud-based technologies enables our customers, to dramatically improve the portability security and accessibility of their enterprise data.

This accessibility is key in our modern world, where data is not only protected, but also intelligently leveraged to facilitate learning to improve product design and to drive competitive advantage. Within then the long-term archive retention and reinstated statement segment, we've traditionally sold our FalconStor VPL or virtual tape library solution, and are now actively marketing our next-generation long-term archive product called StorSafe, which I mentioned earlier.

Both of these products deliver innovations that enable our customers to modernize their archive operation and infrastructure, and dramatically reduce their archive data storage costs, while improving archive security, affordability, and accessibility. With our patents on innovation, then we believe they can transform historic challenges in archive storage and data management.

The second thing within our business continuity driven data replication segment, our core products are our network storage server or NSS solution and our continuous data protection or CDP solution. Traditionally, these solutions have been available as standalone products or could be licensed together via our broader software platform.

These products enable our enterprise customers to achieve superior recovery point and recovery time objectives, while optimizing storage hardware, investments through advanced storage virtualization. So, we'll continue placing our focus within these two product segments for the foreseeable future.

As I mentioned earlier, our first key 2020 strategic initiative has been to expand our industry leading long-term archive, retention and reinstatement product line by creating flexible and sensible data storage innovations to drive our growth, over the next decade. As part of this initiative, we have expanded our targeted go to market pass, these now include large enterprises with diverse technology platforms, including IBMi and Windows and Linux and others.

Second then on IBM -- IBM ProtecTIER Replacement; ProtecTIER has been invoiced. Third then on the Hitachi Content Platform or HCP storage replacement or stores leverage I should say.

Fourth then, on the HPP or Sepaton replacement, which has also been invoiced. Fifth, in our Dell EMC data domain upgrades.

Sixth on legacy tape modernization. And then finally, and one that I'm very excited about helping our -- helping cloud storage and MSP partners dramatically improve their data management capabilities.

So this goes to -- actually go to market paths have proven effective, and we will continue to strategically focus in this area. Finally, and in summary, I mentioned this, I think nearly every earnings call, but I'd like to again reiterate that FalconStor is very good.

Our two decades now of technology innovation is unmatched by newer entrants in the data protection space, and we'll continue to build upon this advantage. Our customers know that our solutions are powerful, that we provide one of the industry's most comprehensive set of solutions in this space and that we are actively innovating to deliver capabilities that change the dynamics of archive storage management well into the future.

So, at this point, I'm going to turn it over to Brad to provide additional detail about our Q2 financial results. Brad?

Thank you, Todd. As Todd mentioned, during Q2, we delivered 11.5% year-over-year total billing growth, despite the economic turmoil caused by the global COVID-19 pandemic.

We closed the three months ended June 30 2020 with $3.5 million GAAP revenue compared to $4 million for the same period of the previous year. Our software solutions play a key role in efficiently managing and protecting critical data for businesses around the world and we are confident that as the global economy recovers our sales momentum will recap the momentum achieved with our recent sales successes in key strategic markets such as the Americas.

As we move forward through the balance of the year, our energy will be concentrated on generating positive cash flow, capital preservation, strategic growth and continued product innovation. GAAP total cost of revenue for the three months ended June 30th 2020 decreased 69% to $0.4 million compared with $1.3 million in the prior year period.

Total gross profit increased $0.4 million or 15% to $3.1 million for the three months ended June 30th 2020 compared with $2.7 million for the prior year period. Total gross margin increased to 89% for the three months ended June 30th 2020 compared with 68% for the prior year period.

The increase in our total gross margin and total gross profit in absolute dollars was primarily due to our cost reduction efforts and our decision to stop selling hardware. GAAP total operating expenses for Q2 of 2020 were $2.6 million compared to $3.7 million in Q2 2019.

Again, as we said last quarter due to the commercial uncertainty in late Q1, we developed and implemented an aggressive expense control plan. This plan reduced our annual cash expense run rate by approximately $4 million or 29% and resulted in the furlough of 21 employees.

Due to the business returning to a more normal trajectory in Q2, we have brought six of the furloughed employees back to work as of August 5th 2020. This conservative approach to expenses has enabled FalconStor a significant margin improvement as the business ramps back up in terms of operating and net income.

During the three months ended June 30th 2020, we reported GAAP operating income of $0.6 million compared to a GAAP operating loss of $1 million for the prior year period. We recorded a GAAP net income of $407,000 for the current quarter compared to a GAAP net loss of $1.2 million for the prior year period.

Turning now to the balance sheet. We ended the quarter with a cash balance of $1.5 million compared to $1.5 million at December 31 2019.

Net working capital excluding deferred revenue contracts receivable but including the redemption value of our term notes ended at $2.7 million dollar deficit. As we mentioned last quarter, we applied for the Payroll Protection Plan loan from the Small Business Administration and received $754,000 in May of 2020.

We close the quarter with $1.5 million of cash and cash equivalents. Accounts receivable growth reserve of $2.1 million, accounts payable and accrued expenses of $3 million and deferred revenue of $5.4 million.

Our $1 million note payable to Hale Capital and ESW comes due in September 2020 and given our current billing momentum and strong accounts receivable growth we plan to pay this off in full and not extend the loan. We also plan to apply for forgiveness for the Payroll Protection Plan loans from the Small Business Administration this quarter.

Finally, we believe the financing commitments the company has in place and our aggressive expense control initiatives described above are sufficient for managing the uncertainty surrounding COVID-19. Todd I will turn it back over -- back over to you now for final comments.

All right. Well, thank you, Brad.

And in summary our thoughts remain with everybody as they manage through the unprecedented impacts caused by COVID-19. We'll continue to do what is necessary in our part to protect our employees and successfully operate against our key strategic initiatives throughout 2020.

Then at this time, I'm going to ask Clark to begin the question-and-answer session. Clark, go ahead.

Great. Yes, 30 seconds, so just in case any question comes to mind here real quick.

Don't be shy everyone. Feel free to submit a question if you have one.

All right. Well, we'll call it then.

Once again folks thank you very much for your time. We are obviously excited by the performance that we had in Q2 and by our performance thus far in Q3.

And we look forward to reporting again here in 90 days or so. So with that we hope everyone has a great week.

And thanks again for attending our call today. Thank you.