DTST earnings call analysis

NASDAQ:DTST Q1 2026 Earnings Call Transcript Generated on 8/18/2026 Operator | Conference Operator: Greetings and welcome to the Data Storage Corporation first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Walden, Investor Relations. Thank you.

You may begin. David Walden | Investor Relations

Thank you and good morning, everyone. Welcome to Data Storage Corporation's 2026 First 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 2026 First 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 Security 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 Paluso. Please go ahead, Chuck.

Chuck Piluso | Chairman and Chief Executive Officer

Thank you, David. Good morning, everyone. We appreciate everyone joining us today. The first quarter of 2026 marked another important milestone in the strategic transformation of Data Storage Corporation. Over the past year, we have repositioned the company following a successful sale of our cloud solution business in 2025. And today, we are operating from a position of financial strength, strategic flexibility, and operational focus. As many of you know, the sale of the Cloud First business was transformational for Data Storage Corporation. That transaction not only validated the value we created over more than two decades, but also provided us with the capital foundation necessary to reposition the company towards what we believe are significantly larger long-term market opportunities. Following the transaction, we completed a substantial tender offer that reduced our outstanding shares count by approximately 72% while still maintaining debt-free balance sheet and substantial liquidity. Importantly, the period following the sale was not a pause in activity. It was a period of evaluation, of analysis, of strategic development. We spent considerable time assessing emerging infrastructure trends, regulatory developments, competitive positioning, and areas where we believe meaningful structural market gap existed. What became increasingly clear Experimentation into mission-critical software deployment environments. Across industries such as healthcare, financial service, insurance, organizations are beginning to deploy sovereign AI in AI factory environments. On-site equipment designed to run proprietary AI models on highly sensitive data sets. These are not public AI cloud environments. These are private enterprise grade AI infrastructures that organizations increasingly rely upon for core operating workflows, security, decision making, compliance functions, and customer facing processes. As we started this market, we identified what we believe is a critical infrastructure gap As these systems are deployed, today we believe there are no widely adopted purpose-built platforms designed specifically addressing recovery, resilience, behavior validation, and regulatory compliance to these AI factory environments. After two successful decades, Operating Cloud First, we understand the client's requirements as it relates to meeting their expectations surrounding business continuity. Additional data storage systems focus primarily on restoring hardware or infrastructure uptime, but AI introduces an entirely different challenge set. Enterprises will require a business continuity service. and will increasingly need to validate those models of behaving correctly when a situation occurs. That output remains compliant, that inference consistency is maintained and that recovery procedures themselves satisfy the client and regulatory standards. We believe this creates a significantly new category of infrastructure need. To address this opportunity, we plan to establish sovereign AI Solutions, a wholly owned subsidiary focused on developing what we describe as an AI continuity control plane for regulated enterprises. Our intention is to create a platform capable of serving as a resiliency, recovery, validation, and compliance lane for sovereign AI infrastructure environments. The platform we envision is designed to detect behavioral anomalies, execute validated recovery sequences, and generated audit-ready documentation that regulated industries may interestingly require as AI becomes embedded into critical business operations. Importantly, we believe our approach is differentiated because it focuses not only on infrastructure restoration, but also on preserving operational integrity, compliance posture at the model and behavioral levels. We also believe the market timing is compelling. Earlier this month, several leading AI developers announced multi-billion dollar initiatives designed to integrate AI deeply into the enterprise-wide workflows, further validating large-scale AI deployment across mission-critical environments is accelerating rapidly. While this market remains early stage and rapidly evolving, we believe long-term opportunity could be substantial. Based on our preliminary analysis, regulatory-driven enterprise AI infrastructure spending could ultimately represent a multi-billion dollar annual market opportunity. At the same time, we are not currently aware of any other purposely built platform targeting compliance-driven AI recovery for regulated enterprises in the matter we are pursuing. Our focus throughout 2026 will be advancing the platform architecture, redefining our go to market strategy, continuing industry engagement discussions, and progressing towards potential initial customer opportunities. We expect to provide additional commercial and operational updates as these initiatives advance throughout the year. At the same time, our Nexus business continues to provide an important operational and financial foundation for DTSC. Nexus remains a stable, recurring revenue business delivering VoIP, dedicated Internet access, SD-WAN, and data transport services. During the first quarter of 2026, Nexus sales increased 10.9% year-over-year, while gross profit increased 32.1% and gross margins expanded to 53.7 compared to 45% in the prior period. We believe these results demonstrate both the continued demand for our connectivity services and operational discipline within the business. Just as importantly, Nexus provides us with a recurring revenue base and operating infrastructure that supports our broader strategic initiatives. Financially, we believe DTSP is well-positioned relative to many companies pursuing emerging technology opportunities. We ended the year with no long-term debt, substantial working capital, significant market securities, and a highly flexible balance sheet. That strength gives us the ability to remain patient, strategic, disciplined on how we allocate capital while SAIS remains our primary strategic initiative. We are also continuing to evaluate complementary opportunities. including partnerships, strategic investments, mergers and acquisitions, and other transactions that could strengthen our competitive position and enhance long-term shareholder value. Ultimately, our goal is to position DTSC at the intersection of enterprise AI infrastructure, resiliency, compliance, and mission-critical continuity areas where we believe demand will continue to expand significantly over the coming years. We appreciate the continued support and confidence of our shareholders, and we look forward to updating everyone on our progress as we move throughout 2026. I'd like to turn it over to Chris Panagiotakos for a review of the financial results. Chris?

Chris Panagiotakos | Chief Financial Officer

Thank you, Chuck. Good morning, everyone. As previously discussed, on September 11th, 2025, we closed the sale of our Cloud First business for $40 million. 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 Nexus subsidiary. Sales from continuing operations were $347,000 for the three-month end in March 31, 2026, an increase of $34,000, or 10.9%, compared to $313,000 in the prior year. The increase was primarily attributable to continued growth in our Nexus voice and data solutions business, driven by the addition of new customers and increased spending from existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base. Gross profit for the three months ended March 31, 2026, was $186,000, an increase of $45,000 or 32.1% compared to $141,000 in the prior period. Salary in general and administrative expenses for the three months ended March 31st, 2026 increased $615,000 or 71.8% to $1.5 million from $857,000 for the three months ended March 31st, 2025. The increase was primarily driven by a $425,000 or 311% increase in non-cash stock-based compensation as a result of grants to certain employees during the three months ended March 31, 2026. Professional fees increased by $135,000 or 73.6%, attributable to higher fees paid relating to legal and consulting services during the period. Net loss attributable to common shareholders for the three months ended March 31st, 2026 was $631,000 compared to net income of $24,000 for the three months ended March 31st, 2025. We ended the quarter with cash, cash equivalents, and marketable securities of approximately $9.7 million at March 31st, 2026. We used $29.5 million of the proceeds from the sales of marketable securities to repurchase common stock from our shareholders in connection with the tender offer which closed on January 15, 2026. Thank you. And I will now turn the call back to Chuck.

Chuck Piluso | Chairman and Chief Executive Officer

Thanks, Chris. Let's open up the call for some questions.

Operator | Conference Operator

Thank you. And at this time, we'll conduct a Q&A session. To ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. and your first question comes from Matthew Galinko with Maxim Group.

Please state your question. Matthew Galenko | Analyst, Maxim Group

Hey, good morning. Thanks for taking my questions. As you pursue the AI strategy, I'm curious how you'll pursue, I guess, developing technical solutions to support, you know, the go-to-market. Do you expect to bring developers in-house to the current structure or just curious how you'll approach that?

Chuck Piluso | Chairman and Chief Executive Officer

Good morning, Matt. Thank you for the question. What we're doing right now is that just to cover it across the board essentially is that we have a recruiter working on finding us someone to run the subsidiary. We are hopefully lining up CTOs that we can interview that may want to start off as a consulting basis. and handle the overall project. We're talking to three, four other companies essentially that want to participate in everything from, you know, us subcontracting to them. to partnerships for them to do the installation. We came across this because we put out a letter of intent to a company a while ago about sovereign AI and looking into this and seeing where the holes are. So in doing that, You know, we started finding out, okay, who are the folks that are installing this sovereign AI? And then as we started looking at this very seriously, we said, well, these are companies that we can use to sub out. So from a US basis, Eastern Europe, and from Indian basis, companies are looking to develop this software that today does not exist. You know, you can do what we did at Cloud First for over 20 years, protecting someone's information and having a runbook to get the companies up and going because regulated companies using the cloud, the proprietary data, they're pretty much building it themselves. So we're really on all fronts at this point. And so we hope to start building a statement of work probably over the next 30 days. And that might involve probably three separate companies, each one having a different discipline. Right now, a number of companies, as I've gone around talking about this, and I'm kind of be somewhat quiet to a degree because, you know, you turn them into competitors. but for the most part we would say there's probably going to be three companies involved with putting this together in the two co-location centers of what our intention would to be but overall you know we have to start with someone that's going to be project management and that's why we have the recruiter going on because there'll be a lot going on but we've done it before with 10 data centers in three countries. It's very similar to that but the software to flip it over when there's Thank you very much. make it look like it was almost cloud first but on the GPU side and everything that goes along GPU and storage and the second stage of it will be building the software all along to be able to have it flip over and act behaviorally the same way. Behavioral point objective, behavioral time objective. This is very, very much similar that we did with Cloud First, but it's GPUs, and they are different. There will be multiple companies involved. I'm sorry, a short question, a very long answer, but there will be multiple companies that we're talking to today.

Matthew Galenko | Analyst, Maxim Group

Sure, I appreciate all the color. It's helpful to kind of conceptualize what you're doing. Maybe just as a follow-up, Obviously, I think you have a better sense of timing than we do, but will we start to see expenses ramp up maybe in the second quarter or more in the third quarter around the initiative? And so will we see that starting to hit the P&L or would investments be capitalized and we won't necessarily see it on the P&L? Just curious how the participation might look or as it's looking today and if that's the right timeline to think about.

Chuck Piluso | Chairman and Chief Executive Officer

Sure. Well, rounding our money, we have, let's say, $10 million in the bank. You know, we have some escrows going on still from the Minovas sale. We just settled one on the networking capital with them and have, you know, $700,000 that, you know, we have, you know, have come in or coming in over the last week or so. so we do have some cash the board approved at a recent board meeting for us to go out and explore this and line it completely up with all the pieces that are needed but I think that it will hit the cash but you know it won't be I don't want to use the word significant I can't imagine us spending more than 250 to 300,000 on being able to get it to the point of our statement of work part before we say go. When we say go, it's going to be capital expenses. Those capital expenses will be depreciated over five years for the most part. So the big hit on the cash, you know, I think most of it would be capital. The software development and all of that, we'll see how we can make arrangements. But that'll probably be the part that'll be just unknown at this particular point, frankly, on the software side. But there'll be capital expenditures going on. But I think we have enough money to implement this and still have a couple-a-year run if revenue wasn't generated. But we're hoping to take... hopefully taking agreements in the first quarter of 27, maybe earlier, of which I'll call reservations versus subscription, but they'll all be recurring revenue.

Matthew Galenko | Analyst, Maxim Group

Yeah, that makes sense. And maybe, and last question, then I'll jump back in the queue, but you know, I guess referring to that you know, not a subscription, I guess that kind of speaks towards, you know, figuring out what capacity you need and, you know, relative to how many customers you have and what their demands are. But can you talk a little bit how you're thinking about, you know, how far ahead of, you know, demand that you need to build out capacity and how access to GPUs and data center space might look as you, you know, progress over the next few quarters?

Chuck Piluso | Chairman and Chief Executive Officer

Well, I'm going to say the next one or two quarters we'll just be setting everything all up, hopefully having it all in place, you know, by the end of the year. What's interesting about it is that we wouldn't be into this, let's keep buying more and more GPUs, spending $50 billion that you're seeing, you know, that's going on. That's not the play here. The play is essentially to use just a... An example, take a mid-sized hospital. A mid-sized hospital, let's say they're going to spend a million dollars and set up their environment. They're going to run logistics for an operating room where they're pharmaceutical and they're building this critical. They might have subscribed to software. They didn't build it. You know, they install it and it keeps learning and becoming more intelligent. Well, what are they going to spend to get to the other side to have the compliance in Casablanca Oxfam? All these things that no one's talking about yet. So now are you going to double that capex or do you want to go to a service bureau? And we don't believe NVIDIA is going to build a service bureau, by the way, you know, or Corweave and people like that. They could do it. They're not really focused on it. But for the most part, they now need to have the ability to be able to recover. And so... When we talk about this recovery piece, the return on investment seems significant for them. So I would say that when we're looking at this, a mid-sized hospital is going to need to be able to be compliant, their confidential information sitting on their storage remotely, and we have runbooks. but at some point it needs to flip over and act the exact same way and recover. So, you know, I don't know if I'm answering that question completely but that's kind of the model that you're looking at. That could be insurance companies as well, financial institutions. Does that answer your question Matt?

I'm not sure. Matthew Galenko | Analyst, Maxim Group

It helps. I guess to clarify, you know, I guess when you were hosting you know, cloud first and disaster recovery there. You had an idea of how much capacity you needed, but, you know, taking the million-dollar environment at a mid-size hospital, what would be the, you know, I assume you'll have enough capacity, you know, are you spending one to five so your environment would support five? And, you know, how do you balance the investment of, you know, customer needs to failover? in the GPU environment versus how much overcapacity you want to build.

Chuck Piluso | Chairman and Chief Executive Officer

Well, the first thing I think we know by now after all these years providing business continuity is that a hospital is going to run this application or multiple applications to improve efficiency and all of that, and they're going to depreciate this equipment over three to five years. That hospital is not going to be in the race to add more and more GPUs and more and more GPUs. So we don't see the growth there. So we don't see them continue to build upon that at the rates that we're seeing, you know, folks spending $50 billion. So we can match their equipment on our side. So let's just say, for example, that they want to recover within 15 minutes. Well, that's going to be a higher level service, and that's not going to run a ratio. That's going to be one to one for them. And that's going to be, you know, what we would call high availability in a regular sense. Then there's another layer underneath there, like you're mentioning, Matt, where you're going to run a five to one ratio and eight to one ratio. The one things we learned during 9-11 with cloud first, you know, and then other disasters and storms that all happen is that things can happen geographically within a particular region. So if you run too high of a ratio, you can't support it. So it needs to be coming from different geographies on that. But I would assume that a 5 to 1 ratio would be successful as long as you could probably run a 10 to 1 ratio as long as the 10 are in all different parts of the United States. But I would say on standby type service where you have run books and all of that, I would say that probably 5 to 1 would be a good ratio.

Matthew Galenko | Analyst, Maxim Group

Very helpful, thank you.

Operator | Conference Operator

Your next question comes from Ellen Lipsack with Forth Capital.

Please state your question. Ellen Lipsack | Analyst, Forth Capital

Yes, hi, and thank you so much for taking my question. Can you elaborate on the market opportunity you see for the silver and AI solutions and, you know, why you think now is the right time to enter the space?

Chuck Piluso | Chairman and Chief Executive Officer

Sure, thanks, Ellen. The right time. it could be early on it but if it takes us six months when all of a sudden we believe that when everyone starts everyone looks at AI as a general population of the world now as they go into chat GPT and they ask a question or Claude and say design this and design that the fifth layer of this AI is the business process and and that's the software being developed and so these 150 executives that OpenAI is putting in place that was in a press release, you know, is going out to actually build this software. As this software gets deployed, they're going to need to be compliant the same way all the CPUs have to be compliant, you know, in industry, that they're using best practices. Today, that's not in existence. It might be all happening in one data center. So I think it's a matter of time before compliance and regulation start, you know, surrounding as more and more organizations, regulated organizations are deploying these types of software and services to make them more efficient, to learn better, reduce staff, whatever they're thinking. But that's why these 150 people are being hired because, you know, companies are interested. The talent is lacking on it. And we're there to be able to go up to sovereign AI to say, will you put this in place? How compliant are you? No one, I don't believe anyone's asking that question. And we've been talking to a lot of people. So everyone's focused on learning, training the models, installing equipment, testing it, but they're not there on compliance. and all the regulations that went on over the previous years. And that's why I believe it's a very solid business model.

Ellen Lipsack | Analyst, Forth Capital

So, that makes sense. That kind of leads into my next question. What do you think really differentiates the, you know, sovereign AI solutions from traditional disaster recovery, cybersecurity or, you know, any enterprise infrastructure providers currently in the market?

Chuck Piluso | Chairman and Chief Executive Officer

I think it's the same thing. Essentially, you could say it's the same thing, but none of the folks that are today in disaster recovery that we know that our research came up with are doing anything like this. Whether they're planning that, I'm not exactly sure, but there's enough room in it. Some of the ratios I've seen is that this is going to be somewhere around 5% to 10% of anyone that's putting sovereign AI in place. Some numbers I've seen and it's very tough when you start looking at market numbers is that it's, you know, sovereign AI is around a $50 billion total addressable marketplace and 10% is what some of the numbers that I've seen for this type of thing. But they're rough calculations and I wouldn't hold me to it, but I know this is a solid feeling that this is coming. And I do believe that the folks that are in this business that Cloud First competed with will eventually move into this. I think we might have a Head Start on it, and I think that that's important, but there's enough room with five or six competitors. But right now, if we get this up by the end of the year and we start talking to people in the fourth quarter, I think we'll have a little bit of a lead. Because of our background, we know about escalation risk. We know how to do that. We were doing that. We know how to have run books. and all the things that went on with that. So we do understand, you know, all of that and I think it fits in really, really well with this. But we saw the whole, you know, we saw that come up because we see what's going on with sovereign AI and AI factories. I heard some numbers from Dell of proposals outstanding. They were just some large numbers. So I'm pretty excited about it.

Ellen Lipsack | Analyst, Forth Capital

Definitely very exciting. and I guess in terms of the development timeline and then the potential commercialization path for sovereign AI, what does that look like over the next 12 to 24 months?

Chuck Piluso | Chairman and Chief Executive Officer

Everything's about execution. We all know that. So initially, we were going to try to do everything, you know, and then launch and then studying it some more, we felt maybe the thing to do is to do a two-stage approach. Let's get this up and going. without the behavioral side of it. So that, you know, these regulated organizations, they can be protected, but it's going to be different. It might not move over the exact same way right away behaviorally. You have the runbook and all of these things, but The first stage will be to stand it up, start taking reservations, if I want to call it reservations instead of subscription, and get it moving so they can start testing and coming over to us. And then from the very beginning, let's just say within 60 days, software starts to get developed. So by the time everything gets deployed on the hardware side, staffing is in place, you know, hopefully it's not going to take more than nine months. There's some software out there that you can work with, but a lot has to be developed. So it just doesn't exist. We dealt with this with our IBM systems with Precisely that did a roll-up of all the software companies we used for 15 plus years. And we think there'll be very, very good value in owning this software as well. But that's kind of the timeline, I think.

Ellen Lipsack | Analyst, Forth Capital

Got it. Okay. So that's great. And are you currently evaluating any like strategic partnerships, acquisitions, or maybe even like investments that could potentially accelerate this AI infrastructure strategy?

Chuck Piluso | Chairman and Chief Executive Officer

I originally wanted to do, and I still may, we still may, a joint venture. Folks that are already set up that are installing sovereign AI today and to do a joint venture because they have the staff already in place. and they have the knowledge of it. And it's great for them and not become an automatic partner because, you know, they're installing AI factories and sovereign AI. But we are talking to folks to be partners. One of the problems, you know, Alan, is that when you're small, a lot of times you're not going to be able to get larger organizations to go with you because, you know, that credibility is not there. They want to see a billion-dollar company. Even though the billion-dollar company can be insolvent, you know it's just for the most part they want to see the very large scope so typically working through partners and that's how we did it at Cloud First as well you know when you get that very large deal you know you're bringing a partner on it but we are looking at joint ventures we're looking at partnerships We're not really looking at investments at this time. We don't care if that's necessary, frankly. I think we can do this with money in our bank and still leave a two-year run rate because, you know, the public company is expensive. It runs probably around, you know, I'd say $1.8 to $2 million a year. But I think we have enough. I think we have enough to pull this off. But I'll know more over the next 90 days. We're trying to move pretty fast with it.

Ellen Lipsack | Analyst, Forth Capital

Oh, no, this is super helpful. Thank you so much for taking my questions. I really appreciate it, Chuck, and if I have any other questions, I'll jump back in the queue.

Chuck Piluso | Chairman and Chief Executive Officer

That's great. Thank you, Alan.

Operator | Conference Operator

Thank you, and our next question comes from Matthew Galenko with Maxim Group.

Please state your question. Matthew Galenko | Analyst, Maxim Group

Hey, appreciate you taking another one from me. Just wanted to check in on Nexus and kind of the current revenue generator for the business. I think you had decent annual growth in the first quarter here. Any opportunities to, you know, how do you see that business trending over the rest of this year? Do you have an opportunity to, you know, accelerate that in any capacity? And, you know, do you see it continuing to add to, you know, kind of cut into the burn rate, I guess, as it grows?

Chuck Piluso | Chairman and Chief Executive Officer

You know, Matt, the gross margins are great. We have put some money into Nexus. They're not a large staff. John Canelo, who's the president of that, he owns 20% of that company. John and his staff do an excellent job. John continues to look for... business development types to accelerate it. And I know that he's trying to recruit, you know, as we speak right now, he's trying to recruit business development folks to go. It's very, very difficult, the organic growth, but they're doing a great job with it. We looked at one or two acquisitions to roll it into that company. And we're still looking at that. But I think if John gets successful with getting the right, he is successful with getting the right people on to grow that. I also believe, Matt, that, you know, because they're very limited with manpower, that getting a digital agency to start getting inbound leads going is one of the things that we've been talking about. Cloud First had a great flow of leads. Harold Schwartz did a great job with the digital agency and everything that he did on that to get significant leads coming in. And so we need that to happen and then these business development folks to work on that because no one's answering the phone, no one's letting you in the building. So John does a great job and his staff with association meetings and organizations and sponsorships, things like that. But, you know, that next step, I think, is for Chris to free up some money for him to get, you know, the website going where he can get an inflow of the way that cloud first. And I think that's the next stage. but he is trying to recruit the folks in the distance development area. He needs the help there because he's got great margins and does a good job, has a great product.

The product is great. Matthew Galenko | Analyst, Maxim Group

Great.

Thank you. Operator | Conference Operator

Thank you. There are no further questions at this time so I'll hand it back to Chuck Piluso for closing remarks.

Chuck Piluso | Chairman and Chief Executive Officer

Thank you. Thank you for the questions. There were very deep questions, some of them, and, you know, Ellen, they were great. Hopefully, shortly, we'll be back to everyone, but thank you for the questions. In closing, we believe the foundation we've established over the decades of execution and value creation has positioned DTST to pursue a unique opportunity at the intersection of enterprise AI, resiliency, and regulated infrastructure. Our strategy is supported by financial strength, operational stability, and what we believe is a differentiation of long-term vision for AI continuity infrastructure. As the market continues to evolve, our focus remains on a disciplined execution, strategic flexibility, and creating substantial long-term value for our shareholders. We really do appreciate everyone's continuous support and our shareholders and look forward to sharing additional updates as we progress.

Thank you. Operator | Conference Operator

Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day. jsPDF 3.0.3 D:20260818044845-00'00'

NASDAQ:DTST Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings and welcome to the Data Storage Corporation fiscal year 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Alexandra Schultz, Investor Relations. Thank you.

You may begin. Alexandra Schultz | Investor Relations

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 fiscal year business update conference call. On the call with us this morning are Chuck Peluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 fiscal year 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 meeting 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.

Chuck Peluso | Chairman and Chief Executive Officer

Thank you. Good morning, everyone, and thank you for joining us. First, I would like to acknowledge the delay in reporting our fiscal year 2025 results. which was necessary to allow additional time to complete our year-end audit. This is primarily driven by the complexity of several significant transactions during the year, including the sale of our cloud-first subsidiary, the classification and settlement of many of our outstanding warrants, and the completion of a tender offer. However, we are pleased to be here today to discuss our results in more detail. 2025 was the most consequential year for Davis Storage Corporation's 25-year history. It was a year defined not just by strong financial results, but by decisive action. Action that fundamentally reshaped our company, strengthened our balance sheet, and positioned us for a new phase. Over the past year, we made deliberate choice. to unlock the value we have spent more than two decades building and redirect that value towards what we believe is a significantly larger opportunity ahead. We executed on that strategy in three critical ways. First, we monetized Cloud First for a total transaction value of $40 million. That transaction generated approximately $31.6 million in net proceeds and a $20.1 million gain. We sold a strong asset at full value because we believed that capital could be deployed into opportunities with greater long-term potential. At closing, we had an estimated $41 million in the bank, based on our cash balance of $10 million plus the sale of CloudFirst. Second, we returned $29.3 million of that capital directly to shareholders through a tender offer at $5.20 per share, reducing our outstanding share count by approximately 72%. That level of capital return is rare for a company of our size and reflects a core principle of ours, Capital belongs to the shareholders. And when we generate it, we allocate it responsible, whether that means returning it or investing it for growth. Third, we reset the company. We entered 2026 debt-free with over $10 million in capital, a clean balance sheet, and at this point, a simplified operating structure. From a financial standpoint, these options resulted in record performance. We reported a net income of $19.2 million for the year, compared to $500,000 for 2024. At the same time, I want to be very clear with investors, this level of profitability reflects the cloud-first transaction and other non-recurring events. It does not yet represent earnings power of DTSP, and we are being intentional and transparent What it does demonstrate is our ability to create value and recognize and to realize that value and to act with discipline in how we allocate capital. Today, our core operating business is Nexus, and it's performance. In 2025, Nexus generated 1.4 million in revenue, representing a 13.4 year-over-year growth. Gross margins expanded to 44.4%, and importantly, we improved the quality of the business by reducing customer concentration, with no single customer accounting for more than 10% of the revenue. Nexus is lean, subscription-based. recurring revenue business with improving margins, and real operating leverage. And that brings us to the most important part of our story. What comes next? We have deliberately positioned DTSP as a NASDAQ listed acquisition platform with capital, flexibility, and a clear mandate to identify, acquire, and scale high-quality businesses in large and growing technology markets. We are actively evaluating opportunities in areas where we believe we have both a strategic alignment and the ability to add value, including AI-enabled vertical SaaS, GPU infrastructure, cybersecurity, and SOC-related services, as well as scalable technology businesses with recurring revenue models. These are not abstract targets. These are markets with significant tailwinds. where disciplined capital deployment can drive meaningful long-term returns. In fact, we've already identified and are actively pursuing a number of strategic opportunities with an emerging GPU infrastructure segment in enterprise technology. These areas are being shaped by strong tailwinds, including a rapid adoption of AI-driven workloads, ongoing data architecture, modernization, and increasing demand for scalability, resilient digital infrastructure. Our focus remains on large, evolving markets. where demand visibility is high, where we believe we can deploy capital in a disciplined, accretive manner with an emphasis on opportunities that are often compelling, risk-adjusted returns, and clear avenues for long-term value creation. We are actively advancing these initiatives, positioning ourselves to stay agile and selective as they're developed. We expect to provide meaningful updates in the near term as these opportunities evolve. Importantly, we are only pursuing opportunities where we understand the consumer behavior and business deeply and where we see a clear and credible path to value creation. At the same time, we are focused internally on improving efficiency. As we move through 2026, we expect corporate overhead to decline meaningfully. As we transition from cloud versus divestiture, it's completed. Our objective is to ensure that the earning power of this company is driven by operations, not one-time events. So when you step back and you look at DTSC today, what you see is a company that has undergone a complete transformation. We have moved from a traditional cloud-based managed service model to a streamlined, well-capitalized platform with flexibility to pursue higher growth, higher margin opportunities. We have demonstrated that we can build value, that we are willing to realize it when the timing is right. And now we are focused on the next phase, building a company defined by sustainable growth, disciplined execution, and long-term shareholder returns. 2025 was about realizing value. 2026 and beyond will be about seeking opportunities, bringing together synergistic companies, and creating shareholder value. Now I'd like to turn the call over to Chris Panagiotakos for a review of our financial results. Chris?

Chris Panagiotakos | Chief Financial Officer

Thank you, Chuck. Good morning, everyone. As discussed on our last call, on September 11th, 2025, we closed the sale of our Class First business for $40 million. As a result of the transaction, in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our Nexus subsidiary. Sales from continuing operations were $1.4 million for the year ended December 31st, an increase of $164,000, or 13.4%, compared to $1.2 million in the prior year. The increase was primarily attributable to continued growth in our Nexus voice and data solutions business, driven by the addition of new customers and increased spending for existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions, and expansion of services within our existing customer base. Selling general and administrative expenses for the year ended December 31st, 2025 increased $348,000, or 9.1%, to $4.2 million from $3.8 million for the year ended December 31st, 2024. The increase was primarily driven by a $507,000 or 101.6% increase in non-cash stock-based compensation, primarily related to the accelerated vesting of equity awards in connection with the sale of the cloud-first business, which triggered a fundamental transaction clause in equity award agreements with employees. Salaries and director fees increased $166,000, or 9.8%, attributable to annual merit-based salary adjustments and bonuses. These increases were significantly offset by a $301,000, or 22.8% decrease in professional fees, primarily related to lower legal and consulting expenses in the current year. We expect expenses to decrease for the year ended December 31st, 2026. as compared to the year ended December 31st, 2025, since a significant number of its employees are no longer working for us and instead are working for the buyer across this business. And we anticipate having lower legal and accounting costs. Net income attributable to common shareholders for the year ended December 31st, 2025 was $19.2 million compared to net income of $523,000 for the year ended December 31st, 2024. The significant increase in net income for the 2025 fiscal year was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, cash equivalents, and marketable securities of approximately $41 million at December 31st, 2025, compared to $12.3 million at December 31st, 2024. Thank you. I will now turn the call back to Chuck.

Chuck Peluso | Chairman and Chief Executive Officer

Thanks, Chris. Before we open the call to questions, I just wanted to reinforce what we believe we're entering to an exciting new phase. We attended the NVIDIA conference a few weeks ago, which reinforced the magnitude of the opportunity emerging across both technology and business. The pace of innovation and the scale of investment underway are substantial, signaling a transformation shift across industries. At the same time, It sharpened our approach. Rather than competing directly in a capital-intensive area, such as the billions being deployed into GPUs and core infrastructure, we are focused on a disciplined participation. We have identified several key areas to focus to pursue, and we are advancing them deliberately, allocating capital thoughtfully, and concentrating on opportunities. We see a clear differentiation in the potential to drive meaningful long-term value. Now I'd like to open it up to questions. Operator?

Operator | Conference Operator

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Matthew with .

Please proceed with your question. Matthew | Analyst

Hey, good morning. Thanks for taking my questions and congratulations on getting to this point in the transition. You know, can you give us some sense of what valuations look like? You know, is it kind of what you expected when you started this process, particularly as you look towards some of the AI and HPC opportunities? You know, is it kind of within reason or is it, you know, overheated at all?

Chuck Peluso | Chairman and Chief Executive Officer

Thanks, Matt, and it's good hearing your voice. What's going on is, you know, after attending that conference, Matt, is that this is like nuclear energy. Some people are frightened, but most people are very, very excited. And what's happening on the equipment side of things, you can put your hands on, and it's very, very tangible. On the software side, everyone uses the term their training, their training, their, you know, their platforms, their software and all. We, you know, so when we see the valuations, really you hear things like, you know, someone that's not even at a beta side of the software, people are hoping to get $700 million in their free revenue. But for the most part, you know, as I walked through the conference, I would say that Nvidia has paid for everyone at that conference is huge out of San Jose, it was just amazing on it. But, you know, after spending 25 years and disaster recovery and business continuity, I went there with Matt, you know, one of our board members, and we think we have an idea on a potential opportunity to be able to cough something out, that's something that we know pretty well. We're still testing the waters. We still have a lot of research to do on it over, you know, a period of time. But there are parts that you can play in that you're not going to get crushed or playing with someone that's raising or spend $50 billion on GPUs. So there are some opportunities given that, you know, based on our past experience that we see. So the valuations are all over the place. Most of the people that we spoke to, and by the way, Matt, since September, and we close. We've spoken to 21 companies that we either have passed on, we've passed on, that are everything from the SAS AI offering to, you know, to an MSP to, you know, VoIP companies. And you're both basically seeing, you know, on the MSP side, you know, you're looking really at non-recurring, usually for the most part, unless it's software renewals. You know, they're trading at one times, but they're trying to get two and a half times revenue. It's according to the size that they really are. And on some of the AI stuff, I just have to say that 95% of everyone we've spoken to either at that conference and all, they're waiting to go buy, you know, their 120-foot yacht. So it's not there yet, but the excitement of what's going on is incredible. I think we potentially have some ideas on where we can play that separates us a little bit. But in answer to your question, Matt, it's just all over the place. They're hoping to, like I say, get a $700 million value. I mean, I'm sitting in a, you know, not that I'm a bar goer, but sitting in a hotel bar locked in with around 15 to 20 people that have passed through that a lot of people kind of knew. And, you know, one guy was working on the software on his laptop sitting next to me. and they're going literally for a $700 million valuation. So I think it's all over the place. Everybody's trying to create water. It's a long answer, but, you know, it's that incredible, Matt. It's that incredible what's going on.

Matthew | Analyst

Don, I appreciate the color. And maybe, you know, does having cash in the bank right as it's deployed get the counterparties, you know, a little more – you know, interested in the conversation or is that helping to, you know, kind of move things along in some of these conversations?

Chuck Peluso | Chairman and Chief Executive Officer

You know, two of the things that we're kind of looking at, well, three things, which we always lay out. Oh, is there a reverse merger out there that, you know, gives stockholder value great, you know, great value and all? You know, we're not rushing to that, but people are approaching us. And we're saying, well, gee, why can they do that and we can't, you know? Why can they build something that has a $100 million market cap and more? Why can't we? So we're really not so focused on that now. We'll look at opportunities because they're approaching us. But there's also, I'm going to call it the medium tech, the stuff that's not on fire where you could get burned. So there are some really good MSPs out there, and some of them have developed some AI software. So we've been talking to them, some of these companies, about, well, how about we separate it, and what's the meat and potatoes that's your MSP, and we look at doing something there, and then anything on the software side that – for the term that everybody is still training, still working on, we'll create something as a joint venture or something where we have the opportunity to buy it if you actually deploy it. So, you know, you need to really get creative because most of the folks that are in this MSP space, as well as VoIP companies as well, they've caught on and they're trying to develop the software so they can roll it out to their customer base that they have. And I think that's pretty good, but I don't think we have to give any value yet to that software. But it might be something that's good because organic growth is very tough, and there might be some good cross-selling that goes on. So that's, you know, some of the stuff that we're looking at. Let's go medium tech. Let's not, you know, while we're still looking at this other thing that we kind of feel that might be a good opportunity in the AI infrastructure GPU space.

Matthew | Analyst

Got it. Thank you. And then maybe just last question for the existing business. Is it possible to give us a sense of what the quarterly run rate or burn would look like operating, you know, without a transaction currently and generally what your expectations for Nexus are over the next year, you know, operating independently?

Chuck Peluso | Chairman and Chief Executive Officer

Sure. I'll handle the Nexus. I'll turn the burn over to Chris. Go on, Chris. Give an idea of what our run rate was, typically where a range of where you think it might be.

Chris Panagiotakos | Chief Financial Officer

So I think the burn rate for 2026 will be probably about $2 million for the year being a public company.

Chuck Peluso | Chairman and Chief Executive Officer

So, you know, we think we can reduce some of that, Matt, in certain areas because the legal fees were pretty high, and we're still incurring some of them as we go through it. So, you know, we'll give it a range that's an estimate. Don't hold us to it, but that's kind of what we're expecting on that. On the Nexus side of things, they're growing. We own 80% of Nexus. John Canelo runs that, does a great job. He has a small staff. He's adding some folks to it. You know, I think he has to – I don't want to say he has to. We have to allocate a little bit more money, not much, but to improve his inbound leads. He does a great job with agents and with shows. you know, associations and all of that. But we have to spend a little bit of money, not much, to improve the SEO side of things. But, you know, he's profitable. He turned a profit. You know, we never really allocated a lot of money in this sense to growth. It's been around for a while. We put money in, you know, as he needed it. But we haven't said, you know, here's $100,000, you know, get a digital marketing agency, get the lead flow going. We're trying to hold on to the cash we have, be very disciplined a bit for the first acquisition, along with, you know, we have 2.1 million shares outstanding, you know, give or take, a little bit more than that. But, you know, we want to be careful with that, that if we're going to say, hey, we're going to go raise money, which we would, that it's going to be an increase in value.

Matthew | Analyst

Got it. Very good. Well, hey, appreciate the color and, you know, look forward to seeing what you do.

Chuck Peluso | Chairman and Chief Executive Officer

Thanks very much, Matt. Thanks for spending the time.

Hope to see you soon. Operator | Conference Operator

Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, it's star 1 on your telephone keypad. We'll pause just a moment to allow for any other questions. Mr. Peluso, I see no other questions at this time. We'll turn the floor back to you for final comments.

Chuck Peluso | Chairman and Chief Executive Officer

Thank you. Thanks for the questions, Matt. You know, as we enter this next phase from a position of real strength with capital on the balance sheet and a clean, simplified structure and a clear strategic mandate, That combination gives us the ability to be selective, to be disciplined, and to focus only on opportunities that we believe can create meaningful long-term value for our shareholders. At the same time, we remain grounded in execution. Our priorities are clear. Continue improving performance of Nexus, deploy capital thoughtfully into areas that enhance our scale, expand our margins, and strengthen the overall quality of our earnings. We are building with intention, and we are building for durability. And we do appreciate the trust and support of our shareholders. We look forward to updating you on our progress as we move through 2026 and execute on the opportunities ahead.

Thank you. Operator | Conference Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606090106-00'00'

NASDAQ:DTST Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Greetings and welcome to Data Storage Corporation's second quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Alexandra Schilt, Investor Relations. Thank you.

You may begin. Alexandra Schilt | Investor Relations

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 Second Quarter Business Update Conference Call. On the call with us this morning are Chuck Peluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 Second 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, I'd like to remind listeners that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended that are intended to be covered by the city's harbor created thereby. Forward-looking statements are subject to risks and uncertainties that could cause actual results performed achievements to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words, believes, expects, anticipates, intends, projects, estimates, plans, or similar expressions, or future or conditional verbs such as will, should, would, may, and could are generally forward-looking in nature and not historical facts. although not all forward-looking statements include the foregoing. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct. These risks should not be construed as exhaustive and should be read together with other cautionary statements included in the company's quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K filed with the Security and Exchange Commission. Any forward-looking statement speaks only as of the date on which it was initially made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, change circumstances, or otherwise. I'd now like to turn the call over to Chuck Peluso. Please go ahead, Chuck.

Chuck Peluso | Chairman and Chief Executive Officer

Thank you, Ali. Good morning, everyone, and thank you for joining us on today's call to discuss our 2025 second quarter results. We appreciate your continued interest and the opportunity to share and update on our performance, as well as provide insights into recent developments and future plans. To begin, we'll start with a review of our financial results for three and six month periods ended June 30th, 2025. And with that, I could turn the call over to Chris, our CFO.

Chris Panagiotakos | Chief Financial Officer

Chris? Thank you, Chuck. Good morning, everyone. Total sales for the three months ended June 30th, 2025 were $5.1 million, an increase of approximately $236,000, or 4.8%, compared to the three months ended June 30th, 2024. The increase was primarily driven by continued growth in our subscription-based services. Cloud infrastructure and disaster recovery revenue increased by approximately $193,000 or 6.1% due to the addition of new subscription clients and expanded services for existing clients. Nexus also contributed significantly with an increase of approximately $48,000 or 17.3% reflecting successful sales initiatives. This growth was partially offset by a decrease in equipment and software sales of approximately $95,000, or 12.1%, which is attributable to non-recurring equipment sales in the prior year period and a strategic shift towards subscription services. Total sales for the six months ended June 30, 2025, were $13.2 million, an increase of approximately $84,000 or 0.6% compared to the six months ended June 30th, 2024. The relative stability in total sales was the result of a significant shift in our revenue mix. Growth was primarily driven by a $600,000 or 9.8% increase in our core cloud infrastructure and disaster recovery services and a $79,000 or 14.3% increase in Nexus services. This growth was largely offset by an approximately $615,000 or 12.6% decrease in equipment and software sales, which is primarily attributable to non-recurring equipment sales in the prior year period. Cost of sales for the three months ended June 30, 2025, were $2.6 million, an increase of approximately $108,000 or 4.3% from the prior year period, which was consistent with the overall growth in sales and also reflects our investment in the newly established UK entity, which is contributing to higher cost of sales as operations ramp up. Cost of sales for the six months ended June 30th, 2025 were $7.8 million, an increase of approximately $62,000 or 0.8% from the prior year period. Selling, general, and administrative expenses for the three months ended June 30, 2025 were $3.3 million, an increase of approximately $536,000, or 19.2%, as compared to the three months ended June 30, 2024. The increase was primarily driven by an increase in salaries and director's fees and non-cash stock-based compensation. The rise in salaries is attributable to an increase in headcount to support our growth initiatives in the UK and in the US and annual merit-based salary adjustments. The increase in stock-based compensation reflects new equity awards granted to the board and to key employees and directors in the current period. Also contributing was an increase in commissions associated with increased revenues. These increases were partially offset by lower professional fees and occupancy costs compared to the prior period when we were in the process of transitioning our principal office location. Selling general and administrative expenses for the six months ended June 30, 2025 were $6.3 million, an increase of approximately $735,000 or 13.3% as compared to the six months ended June 30, 2024. The increase was primarily driven by an increase in salaries and director's fees and non-cash stock-based compensation. The increase in salaries is attributable to an increase in headcount to support our growth initiatives in the UK and in the US and annual merit-based salary adjustments. The increase in stock-based compensation reflects new equity awards granted in 2025 and the full period effect of awards granted in 2024. These increases were partially offset by a decrease in rent and occupancy expense compared to the prior period when we were in the process of transitioning our principal office location. Net loss attributable to common shareholders for the three months ended June 30, 2025 was $733,000 compared to a net loss of $244,000 for the three months ended June 30, 2024. Net loss attributable to common shareholders for the six months ended June 30, 2025 was $709,000 compared to net income of $113,000 for the six months ended June 2024. We ended the quarter with cash, cash equivalents, and marketable securities of approximately $11.1 million at June 30, 2025 compared to $12.3 million at June 31, 2024. Thank you. I will now turn the call back to Chuck.

Chuck Peluso | Chairman and Chief Executive Officer

Thank you, Chris. Today's conversation is about the road ahead and how we plan to capitalize on the opportunities in front of us. At the center of the conversation is the proposed sale of cloud-first technologies. I want to be clear. Our long-term strategy is not contingent on the outcome of this transaction. Whether the sale is approved by the shareholders or not, we are moving forward with purpose and ambition. Let's start with the path that the sale is approved. This transaction would be transformative. At $40 million, the deal represents a substantial premium to our entire market cap prior to the announcement. And after fees, taxes, working capital, commissions to investment banks, The approximate net amount is $24 million. And that's $24 million plus the cash in data storage corporation that can be returned to shareholders and reinvested in future growth. Cloud First has been a vital part of our journey. It is a high-performing, cash-generating business that has consistently delivered year-over-year EBITDA growth. However, the public markets, its contribution was not fully recognized. With this sale, we have the opportunity to unlock that hidden value and convert it to tangible return. In addition, our board has authorized a tender offer to purchase up to 85% of the company's outstanding common stock. Using 85% of the cash on hand, as I mentioned, including the proceeds from the sale and our bank accounts at Data Storage Corporation. This represents a return of capital to shareholders designed to reward long-term holders. And even after returning capital, we will retain the resources necessary to remain on NASDAQ and to pursue broader growth agenda. With 15% of the cash earmarked for acquisitions, innovation, and expansion. The 15% is assuming that all shareholders participate, which may not be the case. However, it's up to 85%. That said, if the transaction is not approved by the shareholders at our upcoming annual meeting, we are just as committed to the future. Cloud First will remain a core part of the business. It is a valuable and growing asset. In this scenario, we will continue to optimize cloud-first platform, continue to invest in long-term performance. Equally important, we will continue to explore and expand into new high-growth markets that align with our evolving vision. Our plan is to reshape and rebrand Data Storage Corporation. In fact, we are already engaged in evaluations, strategic partnerships, and technology extensions. These opportunities span artificial intelligence, cybersecurity, and AI vertical SaaS solutions, and we are not limiting ourselves to just these areas alone. In either scenario, we intend to lead with focus, discipline, and a bias towards growth that we expect to drive increased value to our shareholders. The last 12 to 18 months have ushered in a dramatic shift in enterprise technology. The acceleration of AI adoption, the growing complexity of infrastructure needs, the emergence of new software categories, all of these trends are shaping a different kind of enterprise. We believe this creates a window to capitalize and to step into a more expansive role within the tech ecosystem. We are doing this with experience and network to bring together the talent required for our expanded direction. And we are doing it with a goal of delivering value to our shareholders. To support this evolution, we're exploring a full rebranding of the company. We will be redesigning our website and refreshing our brand identity. to better reflect the direction and future of our company. It's strategic. It's about signaling to investors, to partners, to customers. We are evolving. We are focused on the markets that drive shareholder value today and in the years to come. Whether we complete the cloud first sale, our capital allocation remains rooted in balance. we will continue to look for opportunities to return value to shareholders while retaining the flexibility to invest in new platforms, products, and partnerships. If we complete the sale based on the shareholder approval, and over time we cannot execute our plans for some reason, our public entity alone has value. to excellent private companies that desire to be public and to be listed on NASDAQ. We will continue to operate Nexus, which remains an asset in our portfolio, and more importantly, we will continue to pursue opportunities where we believe our expertise can unlock new value, either through organic expansion or targeted M&A. I want to reiterate, that the proposed transaction is subject to shareholder approval at our annual meeting on September 10th, 2025. I urge all the shareholders to review the material in the proxy statement. These documents outline the terms of the deal, the Board's rationale, and the long-term strategy we are pursuing. It's more than just a sale. It's a shareholder-aligned reset a chance to realize value today and position the company for greater value tomorrow. Just to recap, we have a proposed sale of Cloud First at a compelling premium with substantial net proceeds. If approved, we intend to return capital to our shareholders through a tender offer. Whether the sale is approved or not, we are executing future-facing strategy. We are rebranding the company to reflect our new direction. We are investing in next-gen growth verticals like AI, cybersecurity, and SAS. And most importantly, we are confident that either path leads to a stronger, more focused, and ultimately more valuable data storage corporation. Thank you again for your time, your attention, and your continued support as we move forward together. And with that, I'd like to open up the call for questions. Operator?

Operator | Conference Operator

Thank you. And at this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, press star 1 on your telephone keypad. Our first question comes from Matthew Galenko with Maxim Group.

Please state your question. Matthew Galenko | Analyst, Maxim Group

Hey, good morning, and thanks for taking my question. Maybe just first one is, and I apologize if I missed this in the script, but what will your cash position be roughly following the transaction? I know we have the 24 million net proceeds, so is it just another 11 million and sort of that's your post-transaction capital position?

Chuck Peluso | Chairman and Chief Executive Officer

Hi, Matt. How are you? Thanks for the question. We have $24 million in there and we believe that that kind of is approximately the bottom of where it is. We really don't know fully because of taxes and other things that we have networking capital adjustments. So we believe it could be more, but you know, we're, we're cautioned with that to say it's 24 million and that would be 11 million would leave the $35 million.

Great. Thank you. Matthew Galenko | Analyst, Maxim Group

And, um, Maybe on the – just on your visibility into the cloud pipeline for the balance of the year, I'm curious how that's looking. You know, are you seeing any acceleration in, you know, move to cloud and you're capturing those opportunities or, you know, sort of how is the pipeline for the cloud business through the balance of the year?

Chuck Peluso | Chairman and Chief Executive Officer

You know, we normally always have around $10 million in opportunities. And what happens, Matt, is it's rated from a 10% probability up to 90%. 90% means that there's verbal approvals. So it's a wide question. But usually there's between $10 and $1 million in total contract value that always sits in there. What we are seeing, though, and it's continuing because – We're seeing almost like a three-to-one ratio of ads to existing customers and then new sales that typically come in through either shows we've gone to or SEO and things like that with lead generation. But we're seeing the customers continue to add to it. But usually you'll see between $10 to $11 million. Chris is shaking his head yes at me, Matt.

Matthew Galenko | Analyst, Maxim Group

All right, great. And last question for me, I'll jump back in the queue. You mentioned some higher expenses related to your European expansion. You know, any update on how the growth opportunity is shaping up there and, you know, kind of where is the, you know, where are you operationally in Europe at this point?

Chuck Peluso | Chairman and Chief Executive Officer

Sure. So Colin Freeman, who does an excellent job with his staff, everything is installed in three data centers. I think we have 10 partnerships. Other 10 partnerships, they're not the same company. I don't know if we've been clear on that in the past. They're three separate companies, organizations that have the Intel platform installed. in these data centers, and each one of those companies have partnership arrangements. I believe that Colin and his group have trained all of their Salesforce, the partner's Salesforce. In addition, there's around seven additional distributors. So that funnel is building. I believe they have some opportunities in there. At hand, I don't have that, but I've heard as of last week that those opportunities are building and they're working well. towards bringing them in and closing the deals. So that's going well. Also, just, you know, we've added, and I'm not sure if it hit the second quarter fully or not, you know, we have four new sales, you know, individuals, account maintenance, and and such and two additional techs that have been added into the mix on things. So we've really beefed up the sales, especially in the account maintenance area because, you know, at one time we had one person doing that. You know, we have a team now because these addendums are coming in and same customer sales are important along with the renewals that go along with it. So we continue to hold a good renewal rate.

Matthew Galenko | Analyst, Maxim Group

Excellent. Thank you. I'll jump back in the queue.

Operator | Conference Operator

Thank you. And a reminder to ask a question, press star 1 to remove yourself from the queue. Press star 2. Our next question comes from Ellen Litvick with Forest Hill Capital.

Please state your question. Ellen Litvick | Analyst, Forest Hill Capital

Yes. Thank you. Hi, Chuck. Thanks for taking my question. Appreciate it. Um, first, can you actually walk us through, I guess, really the rationale behind selling cloud first, especially given that, you know, currently represents, uh, I guess approximately about 95% of your revenue.

Chuck Peluso | Chairman and Chief Executive Officer

Hi, Ellen. Um, you know, I'm, you know, frankly speaking, personally, someone that has invested in this company and what's interesting, this company was launched on, um, nine 11 and, um, And we now have a shareholder meeting actually on September 10th. And it's kind of interesting. And hopefully we close on September 11th. And it's, you know, it's interesting of what happened 9-11. And now all of a sudden, you know, this company that kicked off then, you know, now years and years later where we are. And quite frankly, it's, you know, it's very interesting about the dates and how they align. Not to be too... you know, into astrology and all. But it's disappointing because we weren't able to do M&A. We weren't able to use the stock. Our volume was low, and we have a cash machine. If it stayed as a private company, it's a cash machine. What was the EBITDA, Chris, on, let's say, cloud first?

Chris Panagiotakos | Chief Financial Officer

So the EBITDA for cloud first for Q2 was approximately $1 million. And then for the six months, it was approximately $2.5 million.

Chuck Peluso | Chairman and Chief Executive Officer

So you have a cash machine with this, and it's not being recognized. Maybe it's not exciting, but we weren't able to do anything with the stock. And we didn't want to create dilution for shareholders on it. And so at some point, you have to say, where can we get the value? And I believe that we're getting the value. I'd like it to be higher than that, but we've negotiated a deal out. with a firm that we believe is excellent, Proforma, and they're backed by Renovis, a PE firm. And we think it's a great home with great people. They have an x86-type platform. So really coming together, it should be a good marriage if the shareholders approve it. But, you know, we couldn't do anything with the public company, with that company. So we need to really be able to move this forward. And we believe some of the things that we are planning. But if it doesn't happen on it, we're doing the things we're planning anyway. But for the most part, we want to be able to return, you know, value to shareholders.

Ellen Litvick | Analyst, Forest Hill Capital

That makes sense. And, you know, thanks for being candid about it. I guess following the sale, what will the company's operations look like? And what is your strategy for driving growth in the business post-divestiture phase?

Chuck Peluso | Chairman and Chief Executive Officer

Well, post-sale, you know, I would say that there's going to be three people left in the public company. It's going to be the chief financial officer, the chief administrative officer, Wendy Schmitze, Chris Panagiotakos, and myself. And we're in the process now of actually lining up a board of advisers. Excuse me, also we have Nexus in as well. Chris reminds me, sorry. Nexus, and they have a great team. I believe that the company is profitable or very near profitability and growing. But our intention is first on the AI in this area. We're in the process of putting together some very experienced teams. advisor group. And then from that, we're going to look to do some investing into companies that are developing AI vertical software. And we'll see what these acquisitions bring and how long it'll take us. But it will take us probably 30 to 60 days to actually get a full position on a full plan. if that helps, you know. But, you know, we're back to the beginning again. The only difference is when I started this company with Larry Maglione and Rich Ribetti, there were three of us, and we started it from scratch. And, you know, we're okay with doing that again because now this time we have a public company and we have a few million dollars. And we have Nexus, which is an excellent company. I don't know if that answers the question.

Ellen Litvick | Analyst, Forest Hill Capital

Yes, it definitely does. And thanks again so much. If I have any other questions, I'll hop back in the queue. Thanks again, Chuck. Thank you, Ellen. Thank you, Ellen.

Operator | Conference Operator

Thank you. And final reminder, if you'd like to ask a question now, press star 1 on your phone. Once again, to ask a question now, press star 1 on your phone. We'll pause for a couple moments. And ladies and gentlemen, there appears to be no additional requests for questions, so I'll hand the floor to Chuck Peluso for closing remarks.

Thank you. Chuck Peluso | Chairman and Chief Executive Officer

Thank you for the questions, Matt and Ellen. As we move into this next chapter, we're focused on unlocking value, whether that's through the proposed sale of Cloud First or through the continued optimization of our existing businesses. This is a moment of alignment. aligning capital with opportunity, aligning our brand with strategic future, and aligning our operations with growth sectors that are reshaping today enterprise technology. We have a clear path and a commitment to making disciplined, high-impact decisions that will drive shareholder value. In short, we are not standing still. We are transforming. We are building a company that reflects where the market is going. Regardless of the outcome of the shareholder vote, our vision remains the same, to evolve, to invest, and to grow. We're excited about what lies ahead, and we are confident that our strategy will position Data Storage Corporation for long-term success. I'd like to thank the shareholders for your continued support. Have a great day, and thank you.

Operator | Conference Operator

This concludes today's conference. All parties may disconnect. Have a good day. jsPDF 3.0.3 D:20260606090107-00'00'