Data Storage Corp Q3 FY2025 earnings call

• Acknowledged delay in financial reporting due to accounting adjustments for CloudFirst sale completion. - CloudFirst sale on September 11, 2025, was a significant milestone, providing a strong financial foundation and simplifying structure. - Board established a special committee for tender offer and buyback process. - Exploring strategic acquisitions in areas like GPU-based computing, AI-enabled infrastructure, cybersecurity, but cautiously. - Nexxis subsidiary performing well with opportunities to expand organically and through acquisitions. - Forming a special advisory group of experienced leaders to evaluate strategic opportunities. - Priorities: complete tender offer and buyback, launch new corporate website, close acquisition for recurring revenue, strengthen Nexxis.

The quarter saw the completion of the CloudFirst subsidiary sale on September 11, 2025, for $40 million. Continuing operations from the Nexxis subsidiary: Sales for the 3 months ended September 30, 2025, were $417,000, an increase of $92,000 (28.2%) from $325,000 in the same period 2024. For the 9 months ended September 30, 2025, sales were $1.1 million, up approximately $159,000 (17.6%) from $900,000 in the same period 2024. SG&A expenses for the 3 months ended September 30, 2025, were $1.3 million, an increase of $313,000 (31.8%) from $984,000 in 2024. For the 9 months ended September 30, 2025, SG&A was $3.2 million, up $376,000 (13.1%) from $2.9 million in 2024. Net income attributable to common shareholders for the 3 months ended September 30, 2025, was $16.8 million compared to $122,000 in 2024. For the 9 months ended September 30, 2025, net income was $16.1 million compared to $235,000 in 2024. Cash, cash equivalents, and marketable securities at September 30, 2025, were approximately $45.8 million, compared to $12.3 million at December 31, 2024.

• Expect to move forward with tender offer and buyback process shortly. - Final cash position depends on tender offer outcome. - Priorities include launching new corporate website, closing acquisition for recurring revenue, and strengthening Nexxis as the core operating platform.

• Uncertainties in the outcome of the tender offer and buyback process. - Volatility in the AI and infrastructure space affecting potential acquisitions' valuations and viability.

Q: 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?

A: Matt, 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 tended all, 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. So I think it's in that range between $5 million and $15 million, but it's really -- it's too hard to really forecast that. There are really guesses with a low confidence level of what it could be. But we also have a $10.8 million ATM that's also there if we find a 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 million to $11 million in the company. And then as we find the acquisition cap that ATM 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 the smaller company sometimes are not ordered it and have to get audited. So we're pushing us to create the funnel. We also found that about sub-$5 million companies or sub-$10 million is a problem. So we need to move upstream a little bit to $10 million to $20 million. We would do more than that if we saw someone that had the right kind of bank debt, not a poisonous debt, but actually not sure. So that was a long answer. If I had to guess, I would say, it would be great to be ending up with between $10 million and $15 million.

Q: Maybe as a follow-up, just on a housekeeping question. But I know you mentioned there were fees that were nonrecurring in '24 compared to '25 and SG&A. Was there anything in the third quarter SG&A that for '25, that was nonrecurring. So 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?

A: So there were not any nonrecurring charges in the quarter. All the transactions associated with the sale were booked with the sale. So I think the Q3 number is a good number to use going forward.

Q: 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 Nexxis. 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 Nexxis? Or is that not realistic as a use of capital?

A: Let me answer it this way. John Camello does a fantastic job in running Nexxis. And he has a small staff that we continue to add to. The platform and the building that is 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 with that, 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你'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 far and technology has changed. So 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 $1.5 million revenue to $5 million rather quickly and $5 million can go to $10 million. It's not sexy on shareholder value, but we have running the pulp company we have some good expenses. I think our run rate in the public company is typically around $2 million a year. So picking up loyal dial tone revenue and data circuits that John does can reduce or eliminate that burn. So yes, it is a good focus. And 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. So we're watching, we have some ideas on that. We've been talking to folks but as to the Nexxis piece, yes, it's an easy one first 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.

Q: Just curious about your position on the tender offer or the one that -- is it likely to happen or the probability of that happening?

A: Yes. Well, we stated that in the proxy 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 yes, that is going on. The special committee is evaluating with the price of that buyback should be for the per share but just that's happening.