Data Storage Corp Q2 FY2025 earnings call

• Proposed sale of CloudFirst Technologies: If approved, the $40 million deal would be transformative, with net proceeds of ~$24 million plus existing cash, allowing return of capital to shareholders via a tender offer and investment in future growth. CloudFirst is a high-performing cash-generating business. - Rebranding plans: The company is exploring strategic partnerships and technology extensions in areas like AI, cybersecurity, and AI vertical SaaS solutions. - Regardless of sale approval: CloudFirst will remain a core part of the business, and the company will continue to optimize it and explore new high-growth markets.

For the 3 months ended June 30, 2025, total sales were $5.1 million, a 4.8% increase compared to the prior year. This was driven by growth in subscription-based services: cloud infrastructure and disaster recovery revenue up $193,000 (6.1%) and Nexxis up $48,000 (17.3%), offset by a $95,000 (12.1%) decrease in equipment and software sales. For the 6 months ended June 30, 2025, total sales were $13.2 million, a 0.6% increase. Growth came from a $600,000 (9.8%) increase in cloud infrastructure and disaster recovery services and a $79,000 (14.3%) increase in Nexxis services, offset by a $615,000 (12.6%) decrease in equipment and software sales. Cost of sales for 3 months ended June 30, 2025, was $2.6 million, up 4.3%, and for 6 months was $7.8 million, up 0.8%. SG&A expenses for 3 months ended June 30, 2025, were $3.3 million, up 19.2%, and for 6 months were $6.3 million, up 13.3%. Net loss for 3 months ended June 30, 2025, was $733,000 vs. $244,000 prior year; net loss for 6 months ended June 30, 2025, was $709,000 vs. net income of $113,000 prior year. Cash, cash equivalents, and marketable securities at June 30, 2025, were $11.1 million.

• If CloudFirst sale is approved, a tender offer to purchase up to 85% of outstanding common stock using cash from the sale and existing cash will be made. - The company will retain resources to remain on Nasdaq and pursue growth agenda, with 15% of cash earmarked for acquisitions, innovation, and expansion even after returning capital. - Whether sale is approved or not, the company will reshape and rebrand, exploring opportunities in AI, cybersecurity, and SaaS.

• Uncertainty in net proceeds from the CloudFirst sale due to taxes, working capital adjustments, and fees. - Execution risks of new growth strategies in emerging markets like AI and cybersecurity. - Risk that the sale of CloudFirst may not be approved by shareholders, requiring the company to continue with existing strategies without the potential benefits of the sale.

Q: What would the cash position be roughly following the CloudFirst transaction?

A: With $24 million in net proceeds and existing cash of $11 million, it could be around $35 million, but cautioned due to potential net working capital adjustments.

Q: What's the visibility into the cloud pipeline for the balance of the year?

A: Normally, there's around $10 million to $11 million in opportunities, with a mix of adds to existing customers and new sales from lead generation.

Q: Update on European expansion and growth opportunity?

A: Colin Freeman's team has installed in three data centers, has partnerships and distributors, and opportunities are building with new sales individuals and techs added.

Q: Rationale behind selling CloudFirst?

A: CloudFirst is a high-performing cash-generating business not fully recognized by public markets; sale would unlock hidden value and allow return of capital to shareholders.

Q: What will the company's operations look like post-divestiture and growth strategy?

A: Post-sale, a few key executives remain, and the company will focus on AI, cybersecurity, and AI vertical SaaS solutions, with plans to form a Board of Advisers and explore investments in related companies.