Data Storage Corporation (DTST) Earnings

Management highlights

- Acknowledged delay in reporting 2025 fiscal year results due to complexity of significant transactions like sale of CloudFirst, classification and settlement of warrants, and tender offer. - Monetized CloudFirst for $40 million total transaction value, generating ~$31.6 million net proceeds and $20.1 million gain, with ~$41 million in the bank after sale. - Returned $29.3 million to shareholders via tender offer at $5.20 per share, reducing share count by ~72%. - Entered 2026 debt - free with over $10 million in capital, clean balance sheet, and simplified operating structure. - Nexxis in 2025 had $1.4 million revenue, 13.4% growth, 44.4% gross margins, and reduced customer concentration. - Positioned as NASDAQ - listed acquisition platform to identify, acquire, and scale high - quality businesses in AI - enabled vertical SaaS GPU infrastructure, cybersecurity, etc. - Focused on large evolving markets with high demand visibility and disciplined capital deployment. - Expect corporate overhead to decline in 2026 as CloudFirst divestiture is completed.

Guidance

- Expect expenses to decrease in 2026 compared to 2025 as many CloudFirst employees are no longer with the company and legal and accounting costs are anticipated to be lower. - Nexxis is growing, with John Camello running it, and they plan to spend a little to improve inbound leads, being disciplined with cash for first acquisition.

Segment performance

In 2025, Nexxis generated $1.4 million in revenue, representing a 13.4% year - over - year growth. Gross margins expanded to 44.4%. Importantly, it improved the quality of the business by reducing customer concentration, with no single customer accounting for more than 10% of the revenue.

Analyst Q&A

• Q: Maybe can you give us some sense of what valuations look like? Is it kind of what you expected when you started this process, particularly as you look towards some of the AI and HPC opportunities? Is there -- is it kind of within reason? Or is it over overheated at all?

  A: Thanks, Matt, and it's good hearing your voice. What's going on is 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, they're training. They're training their platforms, their software and all. So when we see the valuations really you hear things like someone that's not even at a beta side of the software, people are hoping to get $700 million and their pre - revenue. But for the most part, as I walk through the conference, I would say that NVIDIA has paid for everyone at that conference. It was huge out of San Jose. It was just amazing on it. But after spending 25 years in disaster recovery and business continuity, I went there with, Matt, one of our Board members. And we think we have an idea on a potential opportunity to be able to cost 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 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 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, over the -- 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 AI offering to an MSP to VoIP companies. And we're both basically seeing on the MSP side, you're looking really it's nonrecurring usually for the most part, unless it's software renewals. They're trading at 1x, but they're trying to get 2.5x 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 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 An answer to your question, Matt, it's just all over the place, you're hoping to, like I say, get a $700 million value. I mean, I'm sitting in a -- not that I'm a bar goer, but sitting in a hotel bar locked in with around 15 to 20 people that have pass - through that a lot of people kind of knew. And one guy was working on the software and 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 is trying to create water. It's a long answer, but it's that incredible, Matt. It's that incredible what's going on.

• Q: Maybe does having cash in the bank ready to deploy, get the counterparties a little more interested in the conversation? Or is that helping to kind of move things along in some of these conversations?

  A: Two of the things that we're kind of looking at, well, 3 things, which we always laid out. Oh, is there a reverse merger out there that will give stockholder value great value and all. 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. 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, 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 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 need to really get creative because most of the folks that are in this MSP space as well as VoIP companies as well. They 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 some of the stuff that we're looking at, let's go medium tech. Let's not -- 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.

• Q: 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 without a transaction currently? And generally, what your expectations for Nexxis are over the next year operating independently?

  A: Sure. I'll handle the Nexxis. I'll turn the [ burn ] over to Chris. Go on Chris, you have an idea of what our run rate was typically where a range of where you think it might be? A: So I think the burn rate for 2026 will be probably about $2 million for the year. being a public company. A: Yes. So 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 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 Nexxis side of things, they're growing. We own 80% of Nexxis. John Camello runs that does a great job. He has a small staff. He's adding some folks to it. 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, associations and all of that. But I think we have to spend a little bit of money not much to improve the SEO side of things. But he's profitable, he turned to profit. We never really allocated a lot of money in this sense to growth. It's been around for a while. We put money in as we needed it. But we haven't said, here's $100,000 get a digital marketing agency, get the lead flow going. We're trying to hold on to the cash we have, be very disciplined for the first acquisition, along with -- we have 2.1 million shares outstanding, give or take, it's a little bit more than that. But 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.