Data Storage reports strong Q3 results with $16.8M net income, emphasizing strategic focus on disciplined growth after Cloud First sale.

OPERATOR - (00:01:39)

Greetings and welcome to the Data Storage Corporation third Quarter Earnings Conference call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press Star0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexandra Schilt of Investor Relations. Thank you. Please go ahead.

Alexandra Schilt - (00:02:09)

Thank you. Good morning everyone and welcome to Data Storage Corporation's 2025 third quarter business update Conference Call. On the call with us this morning are Chuck Peluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer. The Company issued a press release this morning containing its 2025 third quarter financial results which is also posted on the Company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before we begin, please note that today's call contains forward looking statements within the meaning of the Private Securities Litigation Reform act of 1995. Actual results may differ materially due to various risks and uncertainties described in the Company's filings with 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 - (00:03:15)

Thank you, Ali. We appreciate everyone joining us today. First, I want to acknowledge the delay in the reporting of our financials. We require additional time to finalize the accounting adjustments related to the sale of our CloudFirst subsidiary and the team worked diligently to complete this as quickly as possible. However, we're happy to be here with you today to discuss our results and our strategy moving forward. This quarter represents a defining period for Data Storage Corporation as we completed the sale of our CloudFirst subsidiary and repositioning the company for its next phase of disciplined growth, what we call DSC 2.0. The Cloud First Sale, completed on September 11, 2025 was a significant milestone for our company that provided strong financial foundation while simplifying our structure and allowing us to focus on long term shareholder value creation. In addition, the Board of Directors established a special committee to oversee our tender offer and buyback process, ensuring full transparency and alignment with shareholder interest. Once the tender process is completed, we'll be able to determine our final cash position which will reflect the balance after completing all buyback transactions. We expect to move forward shortly with the tender and also a plan to launch our new corporate website in the coming weeks to highlight the company's streamlined profile and future direction. Before discussing a broader strategy, I'd like to turn this over to Chris Panagiotakos, our cfo, for a review of our financial results. Chris, take it from here.

Chris Panagiotakos - Chief Financial Officer - (00:05:08)

Thank you, Chuck Good morning everyone. As Chuck mentioned, On September 11, 2025 we closed the sale of our CloudFirst business for $40 million. At the time of the sale, CloudFirst was projected to generate approximately 25 million in annual revenue and 5.5 million EBITDA with no debt as a result of the transaction and in accordance with auditing and reporting standards. Our ongoing financial reporting now reflects only our continuing operations, specifically our Nexus subsidiary. Sales from continuing operations, which consist of our Nexus subsidiary, were $417,000 for the three months ended September 30, 2025, an increase of $92,000, or 28.2% from $325,000 in the same period last year. The increase was primarily driven by the continued expansion of our voice and data telecommunications solutions to new and existing customers. Sales from our continuing operations were $1.1 million for the nine months ended September 30, 2025, an increase of approximately $159,000 or 17.6% from $900,000 in the same period last year. The increase was primarily driven by an expand expanding customer base in our Nexus voice and data solutions business. Selling general and administrative expenses for the three months ended September 30, 2025 increased $313,000 or 31.8% to $1.3 million from $984,000 for the three months ended September 30th, 2024. The increase was primarily driven by an increase in non cash stock based compensation, primarily related to the accelerated vesting of equity awards in connection with the divestiture which triggered a fundamental transaction clause and in the equity award agreements with employees, as well as an increase in salaries and directors fees due to the annual merit based adjustments. These increases were partially offset by a decrease in professional service as certain legal and consulting projects from the prior year were completed. Selling general and administrative expenses for the nine months ended September 30, 2025 increased $376,000 or 13.1% to $3.2 million from $2.9 million for the nine months ended September 30th, 2024. The increase was primarily driven by an increase in non cash stock based compensation, primarily related to the accelerated vesting of equity awards in connection with the divestiture which triggered a fundamental transaction clause in the equity award agreements with with employees, as well as an increase in salaries and director fees due to the annual merit based adjustments. These increases were primarily offset by a decrease in professional fees as certain legal and consulting projects from the prior year were completed. Net income attributable to common Shareholders for the three months ended September 30, 2025 was $16.8 million compared to net income of 122,000 dollars for the three months ended September 30th, 2024. Net income attributable to common shareholders for the nine months ended September 30, 2025 was 16.1 million dollars compared to net income of $235,000 for the nine months ended September 30th, 2024. The significant increase in net income for the 2025, three and nine month periods was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, cash equivalents and marketable securities of approximately $45.8 million at September 30, 2025 compared to $12.3 million at December 31, 2024. However, as Chuck noted, our final cash position will depend on the outcome of the tender offer and share buyback process which will commence shortly. Thank you and I will now turn the call back to Chuck.

Chuck Peluso - Chairman and Chief Executive Officer - (00:09:44)

Thank you, Chris the sale of CloudFirst was a transformative event for our company and our shareholders. It allowed us to unlock value, strengthen our financial position and focus on Building DSC 2.0, a streamlined company pursuing selective opportunities and in high value markets. Our near term emphasis is on disciplined execution, prudent capital allocation and operational efficiency. We are currently exploring strategic acquisitions that provide recurring revenue streams within emerging areas such as GPU based computing, AI enabled infrastructure, cybersecurity. But we are approaching these opportunities carefully and strategically. They remain areas of active interest, not current commitments. Our Nexus subsidiary continues to perform well and provides a stable recurring revenue base. We see ongoing opportunities to expand Nexus organically and through targeted acquisitions that complement our communications and data services offerings. We are also in the process of forming a Special Advisory Group composed of experienced leaders in technology, infrastructure and cybersecurity to help identify and evaluate strategic opportunities that align with our long term growth objectives. In addition, we are actively engaging strategic consultants to ensure that every potential investment or acquisition supports our long term vision of profitability and sustainable growth. Looking ahead, our priorities are to complete the tender offer and share buyback process, after which our cash position and capital allocation plans will be finalized, launch a new corporate Website reflecting the company's refined focus. Also, to close on an acquisition that will provide recurring revenue and to continue to strengthen Nexus, our core operating platform. Today, our experience and disciplined management philosophy, combined with our NASDAQ listing, a clean balance sheet, no debt, positions us to act decisively as we uncover opportunities to invest in while continuously focusing on shareholder value. With that, I'd like to open up the call for questions. Operator.

OPERATOR - (00:12:21)

Thank you. The floor is now open for questions. If you would like to ask a question, please press Star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys again, that is Star one to register a question at this time. Our first question today is coming from Matthew Galinko of Maxim Group. Please go ahead.

Matthew Galinko - Equity Analyst - (00:12:54)

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

Chuck Peluso - Chairman and Chief Executive Officer - (00:13:13)

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

Matthew Galinko - Equity Analyst - (00:15:19)

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

Chuck Peluso - Chairman and Chief Executive Officer - (00:16:08)

Chris, you want to answer that? Chris?

Chris Panagiotakos - Chief Financial Officer - (00:16:11)

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

Matthew Galinko - Equity Analyst - (00:16:32)

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

Chuck Peluso - Chairman and Chief Executive Officer - (00:17:26)

Let me answer it this way. John Camello does a fantastic job in running Nexis and he has a small staff that we continue to add to the platform. And the building that he's on makes it very easy for us to go out and let's say pick up a $5 million VoIP company. Most of the VoIP companies have, I'm not going to say all of them but have maybe 40% of their revenue is in Internet access data services. And you know, and with that, you know, you can pick that up I think at a decent multiple, frankly, there's not a lot of loyalty with dial tone. So as long as you're doing a good job on customer service and dial tone exists, a lot of times, it's an easy base. I mean, many years ago we did roll ups in telecommunications, so it's not fun. Technology's changed, but the multiples are not too high on it. And we are actually looking for VoIP and data access companies that are doing just what John is doing to be able to add to that base on that. And I think it's. I don't want to use the word easy, but I believe that John can move from his million and a half dollar revenue to $5 million rather quickly. And 5 can go to 10. You know, it's not sexy on shareholder value, but, you know, we have, you know, running the public company, you know, we have some good expenses. I think our run rate on the public company typically around $2 million a year. So picking up loyalty, dial tone, revenue and data circuits that John does can reduce or eliminate that burn. So, yeah, it is a good focus. And on the AI side with GPUs, it's very volatile. You know, you have companies that have $750 million in revenue and the valuation is $16 billion. So, you know, we're watching, we have some ideas on that. We've been talking to folks, but as to the Nexus piece, yeah, it's an easy one for us because John has a great platform, great billing and all that for us to be able to do that. Actually, one of our board members that was in that business, that sold that business to MagicJack for a good amount is actually helping out, trying to line up some of the brokers for us to start talking to those VoIP and data access companies.

Matthew Galinko - Equity Analyst - (00:19:56)

Very good. Appreciate the color. And I'll jump back in the queue. Congrats on all the progress.

Chuck Peluso - Chairman and Chief Executive Officer - (00:20:02)

Thank you, Matt. Thanks for the questions.

OPERATOR - (00:20:05)

Once again, ladies and gentlemen, that is Star One. If you would like to register a question at this time, we'll pause a moment for any additional questions. We're showing no additional questions in queue at this time. Sorry, giving just one moment. We may have had another one come through. Let me check, please. Okay, our next question is coming from Sean Lee, a private investor. Please go ahead.

Sean Lee - Private Investor - (00:20:39)

Yeah, just curious about your position on the tender offer or the one that is it likely to happen or the probability of that happening. Well, we stated that in the proxy, as you know, when we did that. So we need to do the proxy. It's stated in there and we will be doing it. I believe that we have 90 days from close to get that actual done. So yeah, that is going on. The special committee is evaluating the. What the price of that. You know that buyback should be for the per share. But yes, that's happening. Thank you. Yeah.

OPERATOR - (00:21:27)

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

Chuck Peluso - Chairman and Chief Executive Officer - (00:21:34)

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

OPERATOR - (00:22:28)

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