Earnings call transcript: Data Storage Corp Q3 2025 sees net income surge

Data Storage Corporation (DSC) reported significant financial growth in Q3 2025, with net income leaping to $16.8 million, a dramatic increase from $122,000 in the previous year. This growth was largely attributed to gains from the sale of its CloudFirst subsidiary. The company's stock responded positively, rising by 5.91% to $4.30 during open market trading on November 19, 2025. Despite a forecasted EPS of -$0.02, the actual earnings exceeded expectations, reflecting a robust quarter for DSC.

Key Takeaways

• Net income surged to $16.8 million, largely due to the CloudFirst sale.
• Stock price increased by 5.91% following the earnings announcement.
• Revenue from continuing operations grew by 28.2% year-over-year.
• Strategic focus on acquisitions in AI and cybersecurity sectors.
• Strong cash position with $45.8 million in cash and equivalents.

Company Performance

Data Storage Corp's performance in Q3 2025 marked a significant improvement over the previous year. The sale of the CloudFirst subsidiary for $40 million was a pivotal factor in boosting net income. The company continues to focus on high-value markets, especially in AI and cybersecurity, which are expected to drive future growth.

Financial Highlights

• Revenue from continuing operations: $417,000 (28.2% increase YoY)
• Net income: $16.8 million (up from $122,000 in Q3 2024)
• Cash and equivalents: $45.8 million (up from $12.3 million in December 2024)

Earnings vs. Forecast

Data Storage Corp's Q3 2025 earnings surpassed expectations. The forecasted EPS was -$0.02, but the company reported a positive net income, showcasing a significant earnings surprise. This marks a positive deviation from previous quarters, highlighting effective management and strategic decisions.

Market Reaction

Following the earnings announcement, Data Storage Corp's stock rose by 5.91%, reaching $4.30. This increase reflects investor confidence in the company's strategic direction and financial health. The stock's movement was noteworthy against a backdrop of volatility in the tech sector, suggesting a strong market sentiment towards DSC's future prospects.

Outlook & Guidance

Looking forward, Data Storage Corp aims to complete a tender offer and share buyback, launch a new corporate website, and close on acquisitions that promise recurring revenue. The company is targeting a cash position of $10-$15 million post-tender offer and plans to explore acquisition opportunities by March 2026.

Executive Commentary

CEO Chuck Piluso emphasized the transformative nature of this quarter, stating, "This quarter represents a defining period for Data Storage Corporation." He highlighted the company's focus on strategic acquisitions, noting, "We are currently exploring strategic acquisitions that provide recurring revenue streams." Piluso also underscored the company's disciplined management philosophy, positioning DSC to act decisively in the market.

Risks and Challenges

• Potential volatility in AI and infrastructure sectors could impact strategic plans.
• Integration risks associated with new acquisitions.
• Market competition in high-value sectors like AI and cybersecurity.
• Economic uncertainties that could affect investment and consumer spending.

Q&A

During the earnings call, analysts inquired about the tender offer and acquisition strategy. The company expects a cash position of $5-$15 million after the tender and has a $10.8 million ATM offering available. DSC is focusing on acquiring VoIP and data access companies to expand its Nexus platform revenue significantly.

Full transcript - Data Storage Corp (DTST) Q3 2025:

Conference Operator: 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 star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexandra Schilp of Vesta Relations. Thank you. Please go ahead.

Alexandra Schilp, Investor Relations, Vesta Relations: Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 third-quarter business update conference call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 third-quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC. Except as required by law, the company assumes no obligation to update or revise forward-looking statements.

I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck.

Chuck Piluso, Chairman and Chief Executive Officer, Data Storage Corporation: Thank you, Ali. We appreciate everyone joining us today. First, I want to acknowledge the delay in the reporting of our financials. We required additional time to finalize the accounting adjustments related to the sale of our CloudFirst subsidiary, and the team worked diligently to complete this as quickly as possible. However, we're happy to be here with you today to discuss our results and our strategy moving forward. This quarter represents a defining period for Data Storage Corporation as we completed the sale of our CloudFirst subsidiary and repositioning the company for its next phase of disciplined growth, what we call DSC 2.0. The CloudFirst sale completed on September 11, 2025, was a significant milestone for our company. It provided a strong financial foundation while simplifying our structure and allowing us to focus on long-term shareholder value creation.

In addition, the board of directors established a special committee to oversee our tender offer and buyback process, ensuring full transparency and alignment with shareholder interests. Once the tender process is completed, we'll be able to determine our final cash position, which will reflect the balance after completing all buyback transactions. We expect to move forward shortly with the tender and also 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, Chief Financial Officer, Data Storage Corporation: Thank you, Chuck. Good morning, everyone. As Chuck mentioned, on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. At the time of the sale, CloudFirst was projected to generate approximately $25 million in annual revenue and $5.5 million in EBITDA with no debt. As a result of the transaction and in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our 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 telecommunication solutions to new and existing customers.

Sales from our continuing operations were $1.1 million for the nine months ended September 30, 2025, an increase of approximately $159,000 or 17.6% from $900,000 in the same period last year. The increase was primarily driven by an expanding customer base in our 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 30, 2024. The increase was primarily driven by an increase in non-cash stock-based compensation primarily related to the accelerated vesting of equity awards in connection with the divestiture, which triggered a fundamental transaction clause in the equity award agreements with employees, as well as an increase in salaries and directors' fees due to the annual merit-based adjustments.

These increases were partially offset by a decrease in professional service as certain legal and consulting projects from the prior year were completed. Selling, general, and administrative expenses for the nine months ended September 30, 2025, increased $376,000 or 13.1% to $3.2 million from $2.9 million for the nine months ended September 30, 2024. The increase was primarily driven by an increase in non-cash stock-based compensation primarily related to the accelerated vesting of equity awards in connection with the divestiture, which triggered a fundamental transaction clause in the equity award agreements with employees, as well as an increase in salaries and director fees due to the annual merit-based adjustments. These increases were primarily offset by a decrease in professional fees as certain legal and consulting projects from the prior year were completed.

Net income attributable to common shareholders for the three months ended September 30, 2025, was $16.8 million compared to net income of $122,000 for the three months ended September 30, 2024. Net income attributable to common shareholders for the nine months ended September 30, 2025, was $16.1 million compared to net income of $235,000 for the nine months ended September 30, 2024. The significant increase in net income for the 2025 three and nine-month periods was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, 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 Piluso, Chairman and Chief Executive Officer, Data Storage Corporation: Thank you, Chris. The sale of CloudFirst was a transformative event for our company and our shareholders. It allowed us to unlock value, strengthen our financial position, and focus on building DSC 2.0, a streamlined company pursuing selective opportunities in high-value markets. Our near-term emphasis is on 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, and 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 provide 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 in discipline management philosophy, combined with our Nasdaq listing, a clean balance sheet, and 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.

Conference Operator: 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.

Chris Panagiotakos, Chief Financial Officer, Data Storage Corporation: 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? Can you bound what the low end and high end might be?

Chuck Piluso, Chairman and Chief Executive Officer, Data Storage Corporation: Good morning, Matt. You know that's difficult. I've run a number of models to see what that would be, and also having calls with some of our larger investors when we first announced the tender. I really cannot guess on that. If we tendered everything, the lowest end would be approximately, I think, around $5 million, I'm estimating. And then at the higher end, it could be between $10 million and $15 million. I think it's in that range between $5 million and $15 million, but it's too hard to really forecast it. They're really guesses with a low confidence level of what it could be. We also have a $10.8 million ATM that's also there. If we find the right opportunity that by spending that money, we're actually increasing shareholder value and not diluting them and not increasing the value.

It would be nice to be left with at least $10-$11 million in the company. Then as we find the acquisition, tap that ATM or otherwise. We are not going to just do it to dilute everything. We are going to do it because we have a reason. We are trying to create a funnel of potential acquisitions that we can get done. I mean, I am 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. We are pushing on to create the funnel. We also found that sub-$5 million companies or sub-10 is a problem, so we need to move upstream a little bit to $10-$20 million.

We would do more than that if we saw someone that had the right kind of bank debt, not a poisonous debt. Actually, not sure. That was 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.

Chris, Chief Financial Officer, Data Storage Corporation: Got it. No, I appreciate the color. That's very helpful. Maybe as a follow-up, just on a housekeeping question, but I know you mentioned there were fees that were non-recurring in 2024 compared to 2025 in SG&A. Was there anything in the third quarter SG&A that for 2025 that was non-recurring? In other words, should we see SG&A come down in the fourth quarter as we move past the major part of the carve-out of the segment, or are we still kind of, is the third quarter SG&A number a good run rate to be thinking about?

Chuck Piluso, Chairman and Chief Executive Officer, Data Storage Corporation: Chris, do you want to answer that, Chris?

Chris Panagiotakos, Chief Financial Officer, Data Storage Corporation: Hi, Matt. Good morning. There were not any non-recurring charges in the quarter. All the transactions associated with the sale were booked with the sale. I think the Q3 number is a good number to use going forward.

Chris, Chief Financial Officer, Data Storage Corporation: Got it. Very good. One more, and then I'll jump back in the queue. 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. Is there a scenario where you push harder exclusively into Nexus, or is that not realistic as a use of capital?

Chuck Piluso, Chairman and Chief Executive Officer, Data Storage Corporation: Let me answer it this way. John Canelo does a fantastic job in running Nexus, 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. With that, you can pick that up, I think, at a decent multiple. Frankly, there's not a lot of loyalty with Dial tone. 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. It's not far on technology's change.

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. I think it's, I don't want to use the word easy, but I believe that John can move from his $1.5 million revenue to $5 million rather quickly, and five can go to ten. It's not sexy on shareholder value, but we have running the public company, we have some good expenses. I think our run rate on the public company is typically around $2 million a year. Picking up loyal dial tone revenue and data circuits that John does can reduce or eliminate that burn. Yeah, it is a good focus. On the AI side with GPUs, it's very volatile.

You have companies that have $750 million in revenue, and the valuation is $16 billion. We are watching. We have some ideas on that. We have been talking to folks. As to the Nexus piece, yeah, it is an easy one for us because John has a great platform, great billing, and all of that for us to be able to do that. Actually, one of our board members that was in that business that sold that business to Magic Jack for a good amount is actually helping out, trying to line up some of the brokers for us to start talking to those VoIP and data access companies.

Chris, Chief Financial Officer, Data Storage Corporation: Very good. Appreciate the color, and I'll jump back in the queue. Congrats on all the progress.

Chris Panagiotakos, Chief Financial Officer, Data Storage Corporation: Thank you, Matt. Thanks for the questions.

Conference Operator: 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. I'm sorry, give me 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: 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?

Chuck Piluso, Chairman and Chief Executive Officer, Data Storage Corporation: We stated that in the proxy when we did that. 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. That is going on. The special committee is evaluating what the price of that buyback should be for the per share. Yes, that's happening.

Chris Panagiotakos, Chief Financial Officer, Data Storage Corporation: Thank you. Yeah.

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

Chuck Piluso, Chairman and Chief Executive Officer, Data Storage Corporation: Thank you. Thank you for the questions. In closing, this quarter represents a turning point for Data Storage Corporation. The successful sale of CloudFirst provided both capital, strength, and strategic clarity. As we advance our M&A growth strategy, we remain focused on 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 a conservative and 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.

Conference Operator: 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.

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