Data Storage Corp (DTST) 2025 Q3 法說會逐字稿

Greetings, and welcome to the Data Storage Corporation third quarter earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your Host, Alexandra Schilt of Investor Relations. Thank you. Please go ahead.

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 third quarter Business Update conference call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer.

The company issued a press release this morning containing its 2025 third quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC. Except as required by law, the company assumes no obligation to update or revise forward-looking statements. I'd now like to turn the call over to Chuck Peluso. Please go ahead, Chuck.

Thank you, Allie. We appreciate everyone joining us today. First, I want to acknowledge the delay in the reporting of our financials. We require additional time to finalize the accounting adjustments related to the sale of our CloudFirst subsidiary, and the team worked diligently to complete this, as quickly as possible. However, we're happy to be here with you today to discuss our results and our strategy moving forward.

This quarter represents a defining period for data storage Corporation as we completed the sale of our CloudFirst subsidiary and repositioning the company for its next phase of disciplined growth, what we call DSC 2.0. The CloudFirst sale completed on September 11, 2025, was a significant milestone for our company. It provided strong financial foundation while simplifying our structure and allowing us to focus on long-term shareholder value creation. In addition, the Board of Directors established a special committee to oversee our tender offer and buyback process, ensuring full transparency and alignment with shareholder interests. Once the tender process is completed, we'll be able to determine our final cash position. Which will reflect the balance after completing all buyback transactions. We expect to move forward shortly with the tender and also a plan to launch our new corporate website in the coming weeks to highlight the company's streamlined profile and future direction.

Before discussing a broader strategy, I'd like to turn this over to Chris Panagiotakos, our CFO for a review of our financial results. Chris, take it from here.

Thank you, Chuck. Good morning, everyone. As Chuck mentioned on September 11, 2025, we closed the sale of our CloudFirst business for $40 million.

At the time of the sale, CloudFirst was projected to generate approximately $25 million in annual revenue and $5.5 million in EBITDA with no debt. As a result of the transaction and in accordance with auditing and reporting standards. Our ongoing financial reporting now reflects only our continuing operations, specifically our Nexxis subsidiary. Sales from continuing operations which consist of our Nexxis subsidiary were $417,000 for the three months ended September 30, 2025, an increase of $92,000 or 28.2% from $325,000 in the same period last year. The increase was primarily driven by the continued expansion of our voice and data telecommunications solutions to new and existing customers. Sales from our continuing operations were $1.1 million for the nine months ended September 30, 2025, an increase of approximately $159,000 or 17.6% from $900,000 in the same period last year.

The increase was primarily driven by an expanding customer base in our Nexxis voice and data solutions business. Selling general and administrative expenses for the three months ended September 30, 2025, increased $313,000 or 31.8% to $1.3 million from $984,000 for the three months ended September 30, 2024.

The increase was primarily driven by an increase in non-cash stock-based compensation primarily related to the accelerated vesting of equity awards in connection with the divestiture, which triggered a fundamental transaction clause in the equity award agreements with employees, as well as an increase in salaries and Directors' fees due to the annual merit-based adjustments. These increases were partially offset by a decrease in professional service as certain legal and consulting projects from the prior year were completed.

Selling general and administrative expenses for the nine months ended September 30, 2025, increased $376,000 or 13.1% to $3.2 million from $2.9 million for the nine months ended September 30, 2024.

The increase was primarily driven by an increase in non-cash stock-based compensation primarily related to the accelerated vesting of equity awards in connection with the divestiture, which triggered a fundamental transaction clause in the equity award agreements with employees, as well as an increase in salaries and Director fees due to the annual merit-based adjustments. These increases were primarily offset by a decrease in professional fees as certain as certain legal and consulting projects from the prior year were completed.

Net income attributable to common shareholders for the three months ended September 30, 2025, was $16.8 million compared to net income of $122,000 for the three months ended September 30, 2024.

Net income attributable to common shareholders for the nine months ended September 30, 2025, was $16.1 million compared to net income of $235,000 for the nine months ended September 30, 2024.

The significant increase in net income for the 2025 three and nine month periods was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash equivalents, and marketable securities of approximately $45.8 million at September 30, 2025, compared to $12.3 million at December 31, 2024. However, as Chuck noted, our final cash position will depend on the outcome of the tender offer and share buyback process, which will commence shortly.

Thank you, and I will now turn the call back to Chuck.

Thank you, Chris. The sale of CloudFirst was a transformative event for our company and our shareholders. It allowed us to unlock value, strengthen our financial position, and focus on building DSC 2.0. A streamlined company pursuing selective opportunities in high value markets. Our near-term emphasis is on discipline execution, prudent capital allocation, and operational efficiency.

We are currently exploring strategic acquisitions that provide recurring revenue streams within emerging areas such as GPU-based computing, AI enabled infrastructure, cybersecurity, but we are approaching these opportunities carefully and strategically. They remain areas of active interest, not current commitments.

Our Nexxis subsidiary continues to perform well and provides a stable recurring revenue base. We see ongoing opportunities to expand Nexxis organically and through targeted acquisitions that complement our communications and data services offerings. We are also in the process of forming a special advisory group composed of experienced leaders in technology, infrastructure, and cybersecurity to help identify and evaluate strategic opportunities that align with our long-term growth objectives. In addition, we are actively engaging strategic consultants to ensure that every potential investment or acquisition supports our long-term vision of profitability and sustainable growth.

Looking ahead, our priorities are to complete the tender offer and share buyback process, after which our cash position and capital allocation plans will be finalized. Launch a new corporate website reflecting the company's refined focus. Also to close on an acquisition that will provide recurring revenue and to continue to strengthen Nexxis, our core operating platform today.

Our experience and discipline management philosophy combined with our Nasdaq listing, a clean balance sheet, no debt, positions us to act decisively as we uncover opportunities to invest in while continuously focusing on shareholder value. With that, I'd like to open up the call for questions.

Operator?

(Operator Instructions)

Matthew Galinko, Maxim Group.

Hey, good morning, and thanks for taking my questions. Maybe firstly, can you just remind us on what the possible outcomes of the tender look like for your cash position? Like, can you bound with the low end and high end might be?

Good morning Matt. You know that's difficult. I've run a number of models to see what that would be, and also having calls with some of our larger investors when we first announced the tender. I really cannot guess on that, you know if we tended all everything, the lowest end would be approximately, I think, around $5 million I'm estimating, and then at the higher end it could be between, $10 million and $15 million. So I think it's in that range between $5million and $15 million, but it's really, it's too hard to really forecast that. They're really guesses with a low confidence level of what it could be, but we also have a $10.8 million ATM. That's also there if we find the right opportunity that by spending that money we're actually increasing shareholder value and not diluting them and not increasing the value so it would be it would be nice to be left with you know at least $10 million to $11 million in the company. And then if we find the acquisition, cap that ATM or otherwise but you know we're not going to just do it to dilute everything we're going to do it because we have a reason so we are trying to create a funnel of potential acquisitions that we can get done. I mean, I'm putting the pressure to try to do something by the end of March, but you know the smaller companies sometimes are not audited and have to get audited. So you know we're pushing on it to create the funnel. We also found that, sub $5 million companies or sub $10 million is a problem, so we need to move upstream a little bit to $10 million to $20 million. We would do more than that if we saw someone that had. The right kind of bank debt, not, a poisonous debt, but actually not sure, so that was a long, a long answer. If I had to guess, I would say it was great to be ending up with between $10 million and $15 million.

Got it. No, that I appreciate the call. That's very helpful. Maybe as a follow-up, just on a housekeeping question, but I know you mentioned there were. Fees, non that were non-recurring '24 compared to '25 and SG&A, was there anything, in the third quarter SG&A that, for '25 that was non-recurring? So in other words, should we see SG&A come down in the fourth quarter as we move, past a major part of the carve out of the segment, or, are we still kind, is the third quarter SG&A number good run rate to be thinking about?

Chris, you want to answer that, Chris?

So, hi Matt, good morning. There were not any non-recurring charges in the quarter. All the transactions associated with the sale were booked with the sale, so I think the Q3 number is a good number to use going forward.

Got it. Very good. And then, one more and then I'll jump back in the queue, but with respect to the direction you go for acquisitions, I think you mentioned in the script that you'd consider doing a talk in or something small to bolster Nexxis. I, I'm wondering if that could end up being with some of the volatility we're seeing around expectations. In the AI and infrastructure space and HPC, if kind of data and voice might be a quiet, but productive use for deployment, so is there a scenario where you push harder, exclusively into Nexxis and, or is that not realistic as a use of capital?

Let me answer it this way. John Camelo does a fantastic job in running Nexxis, and he has a small staff that we're that we continue to add to. The platform and the building that he's on makes it very easy for us to go out and let's say pick up a $5 million VoIP company. Most of the VoIP companies have.

I'm not going to say all of them, but to have maybe 40% of their revenue is an Internet access data services, and with that, you can pick that up I think at a decent multiple frankly there's not a lot of loyalty with dial tone, so as long as you're doing a good job on customer service and dial tone exists, a lot of times it's an easy base. I mean, I, many years ago we did roll ups in telecommunication. So it's not far. Technology's changed, but, so the multiples are not too high on it, and we are actually looking for, VoIP and data access companies that are doing just what John is doing to be able to add to that base, on that, and it's, I think it's, I don't want to use the word easy, but I believe that John can move from, his $1.5 million revenue to $5 million rather quickly, and $5 million can go to $10 million. It's not sexy on shareholder value, but you know we have, running the public company, we have some good expenses. I think our run rate on the public company is typically around $2 million a year, so picking up loyal, dial tone revenue and data circuits that John does can reduce. Or eliminate that that burn. So yeah, it is a good focus and on the AI side with GPUs, it's very volatile, you have companies that have $750 million in revenue and the evaluation is $16 billion. So you know we're watching, we have some ideas on that. We've been talking to folks, but as to. Nexxis piece, yeah, it's an easy one for us because John has a great platform, great billing, and all of that for us to be able to do that actually. One of our Board Members that was in that business that sold that business to Magic Jack for a good amount is actually helping out trying to line up some of the brokers for us to start talking to those VoIP and data access companies.

Very good. Appreciate the color, and I'll jump back in the queue and congrats on all the progress.

Thank you, Matt. Thanks for the questions.

(Operator Instructions)

[Sean Lee, private investor.]

Yeah, just curious about your position on the tender offer or the one that is it likely to happen or the probability of that happening yeah.

Well, we stated that in the proxy, as, when we did that, so we need to do the proxy. It's stated in there and we will be doing it. I believe that we have, 90 days from close to get that actual done. So yeah, that is going on. The special committee is evaluating what the price of that buyback should be for the per share, but just that's happening.

Thank you.

Thank you. At this time, I would like to turn the floor back over to Mr. Piluso for closing comments.

Thank you for the questions. In closing, this quarter represents a turning point for Data storage Corporation. The successful sale of CloudFirst provided both capital, strength, and strategic clarity. As we advance our M&A growth strategy, we remain focused on discipline, execution, operational excellence, and shareholder value creation. We continue to evaluate new technology-driven opportunities that complement our history and enterprise infrastructure while maintaining conservative and a focused approach. I'd like to thank our employees, our Board of Directors, advisors, and shareholders for their continued confidence and support. We look forward to updating you on our progress in the months ahead.

Thank you for joining today.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.