Data Storage (NASDAQ:DTST) held its fourth-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.

This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/.

View the webcast at https://event.choruscall.com/mediaframe/webcast.html?webcastid=MUnzWOrH

Summary

Data Storage reported a net income of $19.2 million for 2025, largely due to the sale of its Cloud First subsidiary, highlighting a significant increase from $500,000 in the previous year.

The company returned $29.3 million to shareholders through a tender offer, significantly reducing its outstanding share count by approximately 72%.

Operational focus is now on the Nexus subsidiary, which generated $1.4 million in revenue, marking a 13.4% year-over-year growth with improved gross margins of 44.4%.

The company entered 2026 debt-free with over $10 million in capital, planning to use its strong cash position to pursue acquisitions in high-growth areas such as AI, GPU infrastructure, and cybersecurity.

Management emphasized a strategic shift towards a NASDAQ-listed acquisition platform, aiming to scale high-quality businesses in large technology markets, with a disciplined capital allocation approach.

Full Transcript

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 0 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 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 fiscal year business Update conference call. On the call with us this morning are Chuck Peluso, Chairman and Chief Executive Officer, and Chris Panaggio, 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 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.

Chuck Peluso (Chairman and Chief Executive Officer)

Thank you, Al. 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 was 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 Data Storage Corporation's 25 year history. It was a year defined not just by strong financial results, 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 had 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 believe 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 Cloud first. 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 responsibly, 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 actions 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 DTST and we are being intentional and transparent. What it does demonstrate is our ability to create value and recognize when to realize that value and to act with discipline in how we allocate capital. Today our core operating business is Nexus and it's performing. 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 DTST 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 active 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 first divestiture is completed. Our objective is to ensure that the earning power of this company is driven by operations, not one time events when you step back and you look at DTST 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 out seeking opportunities, bringing together synergistic companies and creating shareholder value. Now I'd like to turn the call over to Chris Panagiga Tacos for a review of our financial results.

Chris Panaggio

Chris thank you Chuck Good morning everyone. As discussed on our Last call, on September 11, 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 1.4 million for the year ended December 31, 2025, 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 employee 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 31, 2026 as compared to the year ended December 2025, since a significant number of its employees are no longer working for us and instead are working for the buyer of Cloud First Business and we anticipate having lower legal and accounting costs. Net income attributable to common shareholders for the year ended December 31, 2025 was $19.2 million compared to net income of $523,000 for the year ended December 31, 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 31, 2025 compared to $12.3 million at December 31, 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 want to reinforce what we believe we're entering into 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 transformational 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 disciplined participation. We have identified several key areas to focus to pursue that are emerging and we are advancing them deliberately, allocating capital thoughtfully and concentrating on opportunities. We see a clear differentiation and the potential to drive meaningful, long-term value. Now I'd like to open it up for questions.

OPERATOR

Operator thank you. If you'd like to ask a question, please press Star one 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 online of Matthew Galinko with Maxim Group. Please proceed with your question.

Matthew Galinko

Hey, good morning. Thanks for taking my questions and congratulations on getting to this point in the transition. Maybe, 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 High-Performance Computing (HPC) opportunities, you know, is there, is it kind of within reason or is it, you know, overheated at all?

Chuck Peluso (Chairman and Chief Executive Officer)

Thanks, Matthewhew. And it's good hearing your voice. What's going on is, you know, after attending that conference, Matthewhew, 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, they're 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 and their free revenue. But for the most part, you know, as I walk 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 in disaster recovery, and business continuity, I went there with Matthewhew, you know, one of our board members, and we think we have an idea on a potential opportunity to be able to carve 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, that we see. So the valuations are all over the place. Most of the people that we spoke to, and by the way, Matthewhew, over the, since, since September and we closed, we've spoken to 21 companies that we either have passed on, we've passed on that are everything from a SaaS to, you know, to a Managed Service Provider (MSP) to, you know, Voice over IP (VoIP) companies. And you're both basically seeing, you know, on the MSP side, you know, you're looking really, it's 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 by, 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, Matthewhew, 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 and it's a long answer, but, you know, it's that incredible, Matthewhew. It's that incredible what's going on.

Matthew Galinko

I appreciate the color and maybe, you know, does having cash in the bank, right, as a deploy 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 laid out, are, 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 $100 million market cap and more? Why can't we? So we're really not so focused on that. 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. You could get burned so there are some really good Managed Service Provider (MSP)s 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 with the meat and potatoes at your Managed Service Provider (MSP) and, 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 Managed Service Provider (MSP) space, as well as Voice over IP (VoIP) companies as well, they've caught on and they're trying to develop the software so they can roll it out to customer base that they have. And I think that's pretty, 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 Galinko

Got it, thank you. And then maybe just last question for the existing business, can you, 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 turn, I'll handle them in 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 Panaggio

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)

Yeah. 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 incur 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, what we're expecting on that. On the Nexus side of things, they're growing. We own 80% of, of, of Nexus. John Camella runs that does a great job. He has a small staff, he's adding some folks to it, you know, 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, to improve his inbound, his inbound leads. He does a great job with agents and with, with shows, you know, associations and all of that. But I think we have to spend a little bit of money. Not much to improve the, the Search Engine Optimization (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 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, for the first, first acquisition along with, you know, we have 2.1 million shares outstanding, you know, give or take, It's 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 Galinko

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. Hopefully see you soon.

OPERATOR

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

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.