Q1 2025 Data Storage Corp Earnings Call

Yahoo

16-05-2025

Charles Piluso; Chairman of the Board, Chief Executive Officer, Treasurer; Data Storage Corp
Christos Panagiotakos; Chief Financial Officer; Data Storage Corp
Matthew Galinko; Analyst; Maxim Group
Adam Waldo; Analyst; Lismore Partners, LLC
Operator
Greetings and welcome to the Data Storage Corporation. First quarter 2025 earnings call. (Operator Instructions) I would now like to turn the call over to your host, Alexandra Schilt, Investor Relations for Data Storage Corporation. Thank you. You may begin.
Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 1st quarter business update conference call. On the call with us this morning are Chuck Peluso, Chairman and Chief Executive Officer, and Chris Panagio Taco's Chief Financial Officer. The company issued a press release this morning containing its 2025 first quarter financial results, which is also posted on the company's website. If you have any questions after the call or like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before we begin, I'd like to remind listeners that this conference call contains forward-looking statements within the meaning of the Private Security litigation Reform Act of 1995, as amended, that are intended to be covered by the safe harbor created thereby. Forward-looking statements are subject to risks and uncertainties that could cause actual results, performance, or achievements to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words believes, expects, anticipate, intends, projects, estimates, plans, and similar expressions or future or conditional verbs such as will, should, would, may, and could are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations include, but are not limited to the company's ability to benefit from the IBM cloud migration underway, the company's ability to position itself for future profitability, and the company's ability to maintain its Nadeck listing. These risks should not be construed as exhaustive and should be read together with the other precautionary statements included in the company's annual report for the year end of December 31, 2024, quarterly reports on Form 10, and current reports on Form 8K filed with the Securities and Exchange Commission. Any forward-looking statement speaks only as the date on which it was initially made, except as required by law, the company assumes no obligation to update or revise any forward-looking statements where a result of new information, future events, change the circumstances, or otherwise. I'd now like to turn the call over to Chuck Peluso. Please go ahead, Chuck.
Charles Piluso
Thank you, Ali. Good morning, everyone, and thank you for joining us on today's call to review our first quarter 2025 results. We appreciate the opportunity to update you on our progress. Before diving into our operational highlights, let me briefly touch on our first quarter of financial performance. Revenue was $8.1 million with our core cloud infrastructure and disaster recovery services growing 14% year over year. We delivered $2.86 million in gross profit, maintaining margin stability. Adjusted EBITDA came in at $497,000 reflecting our ongoing focus on operational efficiency, even as we make targeted investors investments such as Cloud First Europe. Finally, we closed the quarter with $11.1 million in cash and marketable securities, and we remain debt-free, a position we believe is critical as we explore future growth opportunities and strategic alternatives. I will now shift over to what we've built and how our strategy is enabling us to scale faster and smarter. At Data Storage Corporation, our mission is to support enterprises and institutions with cloud infrastructure, disaster recovery, and business continuity solutions that are mission critical in nature. This includes protecting core business systems, ensuring regulatory compliance, and enabling operational resilience in an increasingly complex IT environment. Our operating platform, Cloud First Technologies is purpose-built for reliability, scalability, and security, particularly for IBM power systems. These workloads remain prevalent in financial services, healthcare, manufacturing, and public sector organizations, sectors where performance and uptime are non-negotiable. Cloud First is optimized to meet these specialized needs, and as the migration is underway. And these industries and companies look towards cloud-based solutions. The uniqueness of our offering rooted in deep IBM power infrastructure expertise sets us apart. We are not chasing commodity cloud workloads. We are delivering enterprise grade hosting, backup, recovery to clients with rigorous infrastructure requirements, many of whom operate under regulatory oversight. It's a deliberate model. We've built up that value proposition around long term infrastructure partnerships. That foundation is increasingly attractive as clients prioritize resilience, compliance, and predictability. A key part of this momentum is our expanding infrastructure footprint and partner ecosystem in the UK through Cloud First Europe. Over the past several months, we've formed strategic relationships that significantly extend our capabilities in the region. In November, we partnered with Bright Solid, a trusted data center operator in Scotland with Tier 3 facilities. This partnership gives us secure high availability infrastructure in the region and enables cloud first to serve regulated clients in Scotland and Northern England with enterprise grade redundancy and performance. In January we expanded our relationship with Mega port into the UK, enabling private cloud connectivity via their Direct Connect platform. Positioning us to provide direct, secure, high-speed access to AWS, Azure, and Google Cloud. Without traversing the public internet. This improves performance, enhances security, and enables seamless hybrid cloud deployment. Later in January, we launched a partnership with Pulsa, the most geographically diverse edge data center provider in the UK. Through this relationship, Cloud First now operates across multiple edge locations throughout the country. Embedding our IBM power-based infrastructure directly into Paulsen's footprint. This accelerates our time to market and introduces us to new enterprises that are already or within the Polson ecosystem. These partnerships are highly strategic. They allow us to meet clients where they are geographically, operationally, and technologically, while offering the flexibility, compliance assurance, and performance they expect. Each relationship is built to support long term delivery. Deep integration and scalable growth. While we are encouraged by the ongoing performance of our business and overall financial position, we must acknowledge a disconnect between our operating fundamentals and our current equity valuation. Our stock price does not, in our view, reflect the value of the business, particularly the recurring nature of our cloud infrastructure revenues, our high retention rate, and our differentiated platform. We will continue to seek ways to unlock value for our shareholders. As we look ahead to the remainder of 2025 and beyond, I want to take a moment to reflect on how far we've come and where we're headed. Through a combination of targeted geographic expansion and a clear focus on our core strengths, we have laid the groundwork to become a global leader in cloud infrastructure services. Today, we are proud to stand as one of the very few global single-source providers of both disaster recovery and multi-cloud hosting solutions, including integration with AWS, Microsoft Assure, and Google Cloud. This is particularly true of our IBM power platform. Where we continue to lead with unmatched specialization and performance. Our ability to support IBMI and AIX workloads gives us a valuable market advantage and a distinct competitive edge, especially as enterprise look to modernize our infrastructure without compromising legacy reliability. A differentiation here is not incidental, it's intentional. It's built on decades of expertise, long-term client relationships, and the proven ability to deliver. As we move forward, our priorities are clear. Grow a high margin recurring cloud first revenue, expand our global infrastructure. Expand our partnership ecosystem, maintain a strong financial footing to support scalable operations. And continue to evaluate paths that will enhance long term shareholder value. We are now operating across 10 global data centers serving over 400 clients and managing over 600 contracts. We are proud of what our team has accomplished operationally and financially and remain confident in our staff and our platform. While we operate in a complex and evolving IT environment, our core value proposition remains clear and relevant, ensuring continuity, security, and performance for mission critical systems while delivering a high level of client satisfaction. With that, I'd like to turn the call over to Chris Panagiotakos, our CFO, to discuss our financials. Please go ahead, Chris.
Christos Panagiotakos
Thank you, Chuck. Good morning, everyone. Total revenue for the three months ended March 31, 2025 was $8.1 million a decrease of approximately 2% compared to $8.2 million for the three months ended March 31, 2024. The decrease is primarily attributed to a decrease in one-time equipment sales during the quarter. Cost of sales for the three months ended March 31, 2025, was $5.2 million a decrease of approximately $45,000 or 1% compared to $5.3 million for the three months ended March 31, 2024. The decrease was mostly related to the decrease in one-time equipment related cost of sales. Selling general and administrative expenses for the three months ended March 30, 2025 were approximately $3 million an increase of approximately $200,000 or 2% as compared to $2.8 million for the three months ended March 31, 2024. The increases were primarily due to an increase in professional fees, stock-based compensation, and an increase in headcount. Adjusted EBITA for the three months ended March 31, 2025, was $497,000. Compared to adjusted EBITDA of $680,000 for the three months ended March 31, 2024. Net income attributable to common shareholders for the three months ended March 31, 2025, was $24,000 compared to net income of $357,000 for the three months ended March 31, 2024. We ended the quarter with cash and marketable securities of approximately $11.1 million at March 31, 2025, compared to $12.3 million at December 31, 2024. Thank you, and I will now turn the call back to Chuck.
Charles Piluso
Thanks, Chris. Let's open it up to some questions.
Operator
Thank you. (Operator Instructions) Our first question comes from the line of Matthew Galina with Maxim Group. Please proceed with your question.
Matthew Galinko
Hey, good morning. Thanks for taking my questions. Maybe we could start with, where should we, where are we on the European expansion? I guess like in terms of the business development side. I know you've sort of gone through the infrastructure side in Europe now, what, where are we in the business development and sort of bringing business into those assets now?
Charles Piluso
Thanks, Mitt, for the question. On the business development side. So, we had started investing in the UK in October time frame with some consultants, and then we solidified all of that. Now we have a managing director there. We have a solution architect and a partner manager. In the third week of January, we installed the equipment in three data centers, in the UK. During the time of the consultant to employee, let's call it six months, we've established approximate, I think it's there might be more right now, but the last number I saw was 10 partnerships, distributors that we have established, and the folks who are out there doing training on. On those three data centers, the data centers that we that we're in actually were training their sales reps so that they can actually take the orders and build them out. So we've installed it and we're part of their we'll call it product. List or service or solution list today. So training's been going on a lot of meetings have been going on to be able to educate them so that they can bring that out to their existing clients because we're talking about going after their client base. And our folks are involved when they go on those calls because we find a much higher close ratio when our folks are with them. The partner, but these are actually partnership type arrangements, not just a rack of equipment and we're putting salespeople on the ground. We're going after essentially with them their client base. So, you know they have we'll call it suspects, prospects, we're expecting to hopefully I would anticipate revenue to start. In the fourth quarter of 2025, we're hoping, I would imagine we're hoping that the month of January 2026, is that month will be the first month to break even. Chris, how much money has been invested so far in the in the UK for the quarter it.
Christos Panagiotakos
Was around $450,000.
Charles Piluso
So that's why you'll see that, decrease in inhibitor, right, Chris. That if that helps.
Matthew Galinko
Yeah, if, maybe if you could also, just give us some color on where the, from what you're seeing, where the European market is on, shifting to more cloud services consumption model versus just buying for their own, data center and managing their own infrastructure. Are they further along that process than the US market, or, are we sort of getting to an inflection point there?
Charles Piluso
Oh, it would be a lot of speculation on my part to actually give you an answer that's kind of definitive, but I will say that we know that IBM stated that there's approximately $90 million a year in revenue that will be migrating each year. So that we know that that and that was a conference we attended in Europe. So we were in the common, which is a user event that takes place every year. They've made that statement, and by the count of their customers that they actually have. I believe that Cloud First has more customers at that time than they do, from site readings, but I don't want to make a commitment on that, but that's what it seemed like. But if the migrations going across the board, that people are moving to it, the bigger the big obstacle in a lot of cases was that, people were concerned about security, when they're moving to the cloud, and I think that that pretty much has been showing with the momentum that's going on that the security objections and stuff, we're able to overcome that today and actually in many cases have newer equipment, a better environment, tier 3 data centers, so. I think we're positioned very well. We may move into Europe itself so that we can serve it a couple of the distributor partners that we do have that are very large are saying their customer base is also in Europe, so we're expecting. I would anticipate seeing something in Europe to be able to tie that together. Our CTO Chuck Piluso is working on all of the security requirements and regulations in Europe as we speak.
Matthew Galinko
Thanks. Great caller. I'll jump back in the queue.
Operator
Thank you. Our next question comes from the line of Adam Waldo with Li More partners. Please proceed with your question.
Adam Waldo
Good day, Chuck and Chris. I hope you can hear me okay.
Charles Piluso
Sure, Adam, how are you?
Adam Waldo
I'm well, Chuck. How are you?
Charles Piluso
Good, thanks.
Adam Waldo
So if you don't mind, I'm going to start with a couple of financial reporting, housekeeping questions for Chris and then turn to strategic and capital allocation questions for Chuck. Chris, when do you expect to file your Form 10Q for the quarter?
Christos Panagiotakos
Well, it's going to be filed today.
Adam Waldo
Great, okay. And then as you exited the first quarter, how did the run rate annual recurring revenue of the business compare with the $21.5 million that you had exiting the fourth quarter that you recorded with the fourth quarter results back in March?
Christos Panagiotakos
So the annual recurring revenue for the quarter was about $6.7 million. The new estimate for the annual recurring revenue is a little bit over $22 million for the year, the estimate.
Adam Waldo
Okay. All right, good. And then the remaining customer contract value at the end of the first quarter was what is compared with the $39.2 million that you reported at the end of the fourth quarter?
Charles Piluso
I don't have a number for you right now. On that, I could give you some color on a little bit differently is that all of the contracts that are in place today, the total contract value on that was in excess of $41 million and you know I would say that more than 95% of those have an auto renewal clause in there that auto renews at their initial term but you know for the most part, it's the total contracts that are in existence today when they were signed up and they were billing around $41 million.
Adam Waldo
So that's really helpful. Will the contain a specific number on that, Chris, as we've seen in the K and some of the cus in the past, or is that okay, it won't.
Christos Panagiotakos
We're not going to be reporting that number in Q1.
Charles Piluso
Just to give some color on that a little bit so just so we're very transparent on it, what ends up happening is the renewal rate that we have is very significant. So what happens is you have a sales organization, some people, that, if they've turned over a little, what ends up happening is when a renewal takes place, they have to put in the new beginning, and to the term because it just renewed over and what ends up happening is that we're making a major effort to be able to say beginning and end turn on the new agreement. So you know we keep on trying to refine that, but what we do know is that those initial terms were the (40), $41 million. So you know when we work with Salesforce on this, we're always kind of looking what that is, looking who has an automatic. An automatic renewal rate and whatever their term is that they renew in very few cases, we have folks that are there, I'm going to say probably less than 10, that are on short term agreements because let's say they're trying to move off of the platform, which is very hard for them to do, but say they're doing that, so they might be on a six month agreement to transition off of the platform. So those folks we have as non-not automatically renewable, but there's not many of them. So we're really trying to refine that, but we always look at what the total contract value is of who's billing today. And in our agreements that we have, how Schwartz made some adjustments to that, I think a few years ago where in the agreement it says that we have the right to increase them 10% at the end of the term so that when you look at that $41 million, if all of them. Over again you're looking at, $4 million on top of that, unless they fall out or something. But so that's pretty good, we made those adjustments. Hal did in the past, so you know we like that and that's what's happening. So when they renew it's 10% higher.
Adam Waldo
Okay, that's really helpful. One last financial reporting question, and then I'll jump back in for the strategic and capital allocation questions for Chuck later. On the financial reporting side, can you just give us a sense for what the revenue would have been in the first quarter of this year and what it would have been last year in the first quarter of 2024. If we'd stripped out just the equipment sales from both quarters numbers, what would the year over year revenue growth rate of them?
Christos Panagiotakos
I can get you that number, Adam and email it to you.
Adam Waldo
But back in the envelope it'd be strongly into the double digits, right?
Christos Panagiotakos
I'm not sure. I'd rather just look at the numbers and just give you a definite answer.
Adam Waldo
Okay, thank you. I'll jump back in the queue.
Christos Panagiotakos
Okay.
Operator
Thank you ladies and gentlemen. (Operator Instructions) Our next question is a follow up from the line of Adam Wo with Lismore Partners. Please proceed with your question.
Adam Waldo
Okay, thanks. On the strategic and capital allocation side, checking your prepared remarks, you made reference to strategic alternatives. You made reference to continued understandable frustration with the stock price relative to the sort of private market value of the company. This has been a source of frustration I know for a number of quarters. What steps might the board pursue here? Does that include potentially pursuing strategic alternatives? Could management start to Institute quarterly and annual financial performance guidance for the markets. What are some of the things that you all are thinking about to try to close that valuation disconnect between where stocks trading and the private market value of the company?
Charles Piluso
We were in OTC Hell from 2008 to 2021. Now we're in micro-cap space which, we have some great institutions that have invested in the company. They're there long term, and then we have retail that moves us up and moves us down. We need to be able to see a very stable share price for us to be comfortable that's in line where Matt, who follows us and writes about us, and we're not seeing that $9. So as to strategic alternatives, I mean there it's everyone's strategic alternatives. What would it be, if I went into chat GPT and say give me the strategic alternatives for every micro-cap that has a great. What would it be, undervalued with cash in the bank? Well, buy back shares, carve out the company, and sell it to someone to a P/E firm, buy back warrants, just suffer along and watch the thing at $3.50 and others take advantage for a short period of time of running it up $2 and running it back. I mean, it's just you can go into chat GPT and get like five alternatives. I mean, there's just, I mean, there's probably five alternatives that go on. We're just looking at everything, quite frankly, but it is, we just need to deliver shareholder value. We just need to do that and where it's sitting right now and for me, I, with various, trust or individually, I have 13% of the company, so it's. It's not that much, not that little, but for the most part it's, I'm with everyone else on this, and our objective is to be able to deliver shareholder value. So, as I say, all the alternatives, it's like, when you meet with somebody and you say, gee, what's your plan? Do you have a great company, what's the exit? You always ask that question. So frankly, I think there's a number of different alternatives, and we'll see what that is, but our focus is on shareholder value, we have insiders who own 41% of the company and frankly we're always focusing on the other folks that are all owning public shares and feel that responsibility to be able to deliver that and not languish it where we are. So, it's very frustrating. Adam.
Adam Waldo
No, understood. And just to follow up though, do you, are you all considering instituting a formal quarterly and annual financial guidance process to the street to to potentially help close that valuation GAAP or is that still something that is really not being contemplated?
Charles Piluso
We've been encouraged by folks that actually own shares, when we have, investor conferences and things like that to do that. And even though Cloud first had what, $1.5 million in EBITDA (1.5 IIA) for the quarter, I'm not going to say that it's $6 million for 2025. I'm not going to say that, but that would be great. But for, it's $1.5 million for the quarter. We've been encouraged to do that. We probably could, but I don't think we want the it's just we've been advised against it, quite frankly, so we're taking the advice that we pay for not to do that.
Adam Waldo
Okay. Well, thank you very much and best wishes for the rest of 2025.
Charles Piluso
Thank you, thanks, Adam. Thanks for the questions.
Operator
Thank you, ladies and gentlemen. There are no other questions in line. I'll turn the phone back to Mr. Peluso for any final comments.
Charles Piluso
Thank you. Thanks for the questions, Matt and Adam. Before we conclude, I want to reiterate that our priorities remain clear delivering reliable, high-performance infrastructure to organizations with complex regulated IT environments, expanding into new markets and geographies, and doing so with financial discipline and operational integrity. We recognize that our current market valuation does not reflect the true strength of our core business, particularly the performance of cloud first. Our growing international reach and our recurring revenue model. That is why we've shared with the board and the leadership team. They were actively evaluating a range of strategic alternatives to unlock and deliver long term shareholder value. We appreciate your continued support and interest in data storage Corporation, and thank you once again for joining us today, and we look forward to keeping you informed as we move ahead. Thank you.
Operator
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.