Data Storage Corp Stock

Thank you. Greetings and welcome to the Data Storage Corporation second quarter 2026 earnings call. [Operator Instructions] This conference is being recorded. It is now my pleasure to introduce Alexandra Schilt, Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2026 Second Quarter Business Update Conference Call. The call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer, and Christos Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2026 second 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 feel free to reach out to us at the company's website. 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.

Thank you, Ali. Good morning, everyone. We appreciate everyone joining us today. The second quarter advanced transformation of Data Storage Corporation following the sale of Cloud First. Operating from a focused position with a clear mandate, deploy capital with discipline, explore acquisitions, building sustainable recurring revenue, consider opportunities for merging, and meaningful value for shareholders. There are three points I want investors to take away from this call today. First, Nexus is performing. The revenue from continuing operations increased 9.3% year over year, and the business delivered year-over-year growth in both revenue and gross profit. Nexus gives us recurring revenue and operating foundation in communications and connectivity while we execute a broader strategy.

Second, our balance sheet, it gives us the ability to act. We ended the period with approximately $9.3 million in cash and marketable securities and no long-term debt, as well as a streamlined corporate structure. That capital is something we intend to deploy. We're not deploying capital just for the sake of doing transactions. We intend to be selective, valuation conscious, and focused opportunities where we believe we can build durable earning power. Third, our strategic pipeline is active. We are evaluating businesses and opportunities across AI infrastructure, cybersecurity, communications, software, and other related technology markets. Common thread is straightforward, becoming revenue, predictable cash flow, strong customer relations, capable management teams, and a path to operational and financial growth.

Our strategy is simple. Partner with technology businesses that have compelling products but need resources and capital to scale. We are focused on areas including GPU infrastructure, AI-enabled software, cybersecurity, and telecommunications. We believe the NASDAQ-listed platform and operating experience and our capital position can be meaningful advantages when paired with the right business. We're not trying to assemble a collection of unrelated assets. We're working to build a portfolio of technology businesses that are synergistic and the potential to scale. We also believe our current structure gives us several ways to create value. An acquisition adds recurring revenue and earnings. A strategic investment or partnership can provide exposure to attractive markets while allowing us to manage the risk. And internally developed initiatives can create additional opportunities when they are supported by customer demand.

We are maintaining discipline around valuation and structure. Having capital available does not mean we need to deploy it immediately. We would rather preserve our flexibility than pursue a transaction that does not meet our strategic and financial criteria. When we commit shareholder capital, we want a clear rationale for why that business belongs within DTST, and how that investment can create value over time. That framework also shapes how we evaluate acquisitions. We are looking beyond headline revenue growth. We want businesses where the quality of the revenue is attractive, where customers have a reason to stay, and where the underlying economics can support sustainable earnings over time. We also want management teams to know their markets and can continue to operate as part of a larger platform.

Let me spend a few moments on Nexus. Nexus provides fully managed business voice, internet, data transport, and SD-WAN solutions designed to help you. For the enterprise is enterprise grade reliability and a simplified operation. Its model is built around recurring revenue, high-touch support, and integrated connectivity. For customers, that can mean fewer vendors, better visibility, greater resiliency, and a single point of accountability. For DTST, it provides a stable operating base as we pursue our next stage of growth. Our objective is to continue supporting Nexus while remaining focused on the larger opportunity in front of us. Using the platform and the capital we have today to expand the scale and earnings capacity of the company. We believe the combination of existing recurring revenue business and disciplined growth can create a stronger and more valuable enterprise over time.

The 9.3% year-over-year increase in revenue from continuing operations is encouraging because it demonstrates that this operating foundation continues to move forward while we pursue a broader strategy. Review Nexus not simply as a legacy business, but as an operating asset that gives DTST recurring customer relations opportunities, market presence, and practical experience supporting critical enterprise communications environments. We believe the work we are doing now can materially reshape DTST over time. The opportunity is to take a focused public company platform, a growing recurring revenue operating business, and available capital and use those assets to build a greater scale and stronger earning power.

Today, DTST defined by focus and optionality, we have an operating business that is growing, a debt-free capital structure, a clear acquisition framework. We do not need to force a transaction. We can wait for the right opportunity. And when we find it, we believe we have the platform and resources. Our priority is not activity. It is value creation. Now I'd like to turn it over to Christos Panagiotakos, our CFO, for a review of the financial results. Chris?

Thank you, Chuck. Good morning, everyone. As previously discussed, on September 11, 2025, we closed the sale of our Cloud First business for $40 million. As a result of the transaction in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, particularly, our Nexus subsidiary. Sales from continuing operations were $359,000 for the three months ended June 30, 2026, an increase of $31,000 or 9.3% compared to $328,000 in the prior year period. The increase was primarily attributable to continued growth in our Nexus voice and data solutions business, driven by the addition of new customers and increased spending from existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions, and expansion of services within our existing customer base.

Gross profits for the three months ended June 30, 2026, was $168,000, an increase of $30,000 or 21.9% compared to $138,000 in the prior period. Our gross profit margin improved to 47% from 42.1% in the prior period, driven by favorable sales mix and operating leverage. Selling, general and administrative expenses for the three months ended June 30, 2026, increased $362,000 or 33.2% to $1.5 million from $1.1 million for the three months ended June 30, 2025. The increase was primarily driven by a $328,000, or 99.1%, increase in non-cash stock-based compensation as a result of grants to certain executives and employees, and increase in professional fees of $58,000, or 26.2%, attributable to higher fees paid relating to legal and consulting services during the period.

Net loss attributable to common shareholders for the three months ended June 30, 2026, was $1.2 million compared to the net loss of $732,000 for the three months ended June 30, 2025. We ended the quarter with cash and marketable securities of approximately $9.3 million at June 30, 2026. We used $29.5 million of the proceeds from the sales of marketable securities to repurchase common stock from our shareholders in connection with the tender offer, which closed on January 15, 2026. Thank you. I will now turn the call back to Chuck.

Thanks, Chris.

Let's open up the call for some questions. [Operator Instructions] Your first question comes from Matthew Galinko with Maxim Group. Please state your question.

Maybe if we could start with what you're seeing in the M&A environment and what would you say the biggest hurdle is today? Businesses that you don't necessarily have line of sight to, you know, recurring or scalability and sustainability, or are valuations sort of, you know, not in a place where you'd find really, I'm just curious what you're seeing and how that's changing over time.

Thanks, Matt, and good morning. Thank you for that question. I will tell you, since we signed the deal with Performive, which is owned by Renovus, private equity that we had sold, and then we had the shareholder vote in September of 2025, since that July signing, we've had a lot of problems. We started working on looking at M&A transactions. And we looked at conservatively people from different firms were approaching us to do a reverse merge and say, you know, reverse merge into the company. And then as you look at these companies to see how it would improve shareholder value, you know, we find that there is a pre-revenue biotech, you know, everybody's going to have a $1 billion value in a short period of time. So it was kind of disappointing. So when we look at things like reverse merge, if we actually saw something that was a real solid company, and I say, we looked at over probably 15 people calling us, you know, it really wasn't a strategy of ours to do that, but it's something fantastic came up, well, you've got to look at it. We just didn't see that.

On the other side, you look at some of the valuations and what happens, some of these companies, they go out, I'll give you a very simple example that, you know, they're at $5 million to $6 million in revenue. They have a $500 million valuation and they raise some money from friends and family. So there's a lot of unrealistic, no one's going to write a check out for $500 million for them. And so you're seeing a lot of unrealistic acquisitions. Kind of we have a few different paths. So what we're looking at is there could be distressed companies, for example, that have cyber software, and they got caught up with either bad debt, out of covenant, but they own IP, they have patents filed. And so now, you know, a cybersecurity software, just as an example. So when we see that and we see the management team is pretty solid on things, but got in a little trouble, we like things like that because we know that it has legs. We can pick up the software, let's say, now put some of our experience behind that, put some capital in and then grow that, maybe building a SOC or just selling the software, whatever. So things like that interest us.

We looked at some telecom. You know, with the telecom stuff, although it's just a fantastic business, not on the climb. If you take Packet8 and I just round numbers out, you know, they have like $700 million, $800 million in revenue. Their market cap is like $200 million to $300 million. But it's solid recurring revenue and a lot of folks today, you know, Microsoft Teams ate a lot of their lunch. But when you look at that, that Nexus actually integrates with Teams. So there's integration that goes on with that, and you have a phone company that you can call. So we think that that's good, and that's good for growth, and John and his group does a fantastic job at Nexus.

But we're looking more at a little of Sovereign AI. You know, we believe that we're not running to put up a new cloud. Basically a year ago I wanted to, quite frankly. So we're looking at these niche kind of plays that are not yet ready, but they will be ready. The business that we were in for 25 years, believe that we might be able to build something that is going to lead to compliance. Let's say, as an example, with regulated industries that they're not allowed really to use the cloud, it needs to be a private build. So we're looking seriously at companies that actually install Sovereign AI and then have some of that talent to be able to take it to another level that I have some plans for, but we're not there on it.

So I would say cyber, niche play, GPU infrastructure, companies that have assets or IP, but we've looked at many, many, many companies. I mean, I think on our tracker, it says like 124. And we're finding a few, you know, and we have stuff, we have things that are lined up that, you know, we're looking at, you know, further due diligence on it, but we're not ready to pull the trigger on anyone. But the biggest thing is the management team. And if they have a product that can be delivered and there's a requirement for it. But so many folks have outrageous valuations that go on. And so, you know, so I don't know if that helps with the question, but I think it gives you a feel that we've been really, really active with it. And we continue to every, every week. And we have a number of different banks that we're working with that are sending deals in or approaching us.

That's super helpful and I appreciate the color. Maybe just as a follow-up to that process, do you, for maybe the more attractive type opportunities that maybe have unrealistic valuations today, but need capital and might not be able to raise, might not have access or can't re-raise at the levels that they want. Do you expect or do you expect any of those to potentially come back, you know, six months from now, a year from now with maybe a more reasonable ask or, you know, is that part of the strategy as you kind of remain patient and sort of have different assets and different, you know, levels of engagement?

There's one exact company that we looked at a while ago, over a year ago, could be close to two years. And they came back and we're having discussions and meeting with folks. We're just real careful. We have a group of technical advisors that we can actually, according to who it might be, it might be someone that actually specializes, for example, in software, you know, as it relates to cybersecurity. So we have the folks that can evaluate this. Yes, I'm not a software person, you know, at all. But we do have the talent that can look at the GPU infrastructure, the niche place, you know, that were out of Amazon, Google, and it just goes on, Deloitte. It's just so we have a very, very solid group that gets involved.

Once we say, oh, this management team is good, we like them, their forecasts are too big, let's make that more reasonable, see where it goes, and then as we get into the product we get the advisors involved, and they've been involved in a number of things that we're looking at. So it's from that point of view that they do come back. They do come back because, you know, it's difficult to raise money at that size company and they all need access to capital. We have the NASDAQ company. We can use that and, you know, the $10 million. It gives us a lot of runway and some money to spend. But we're just real careful. We have to see something that, you know, based on just use my experience and we have some really good committees off the board that can actually help launch products on the go-to-market plans. But one company did come back in answer to your question.

Great. Thank you.

Your next question comes from Robert Jordan with TSA Capital. Please state your question.

Chuck, given where your stock is currently trading, how do you view your company's valuation and does it factor into your M&A outlook?

Well, first of all, we're trading below our liquidation value right now. I mean, we have $10 million in the bank. You divide that out if you want to add any value to the public company. So I don't know, but you know, we would use a portion of our cash and anything that we do that we're buying a smaller company. It would be based on some sort of earn-out as it relates to cash and stock. You know, we would issue some of the cash, but we rather buy the company, a company or a majority of the company, place it in a new subsidiary, and we put fresh capital into that to make them grow. And people have to prove that whatever we're buying has legs, that they can grow it, and then doing that benchmarking.

And I think it's reasonable. If they believe in the company, there's no reason why they wouldn't agree to it. When we see these numbers sometimes, we taper it down. Because it's just, you know, they just be talking to somebody they were $15 million, they say within a short period, they'd be at $25 million, another short period, they'd be at $40 million. You know, and it's like, okay, you know, it's just unrealistic. I've been around too many years to say, I think that's really great that you can do that. I just necessarily don't want to participate in that play. But I don't know if that answers the question to you. But we're trading below liquidation value and whatever we build in will be built in with earn-outs, even though there could be cash according to what their revenue and their profit is, you know, based on that.

There'd be upfront money and some of it would need to be on earn-out. And we are limited by cash. I'd love to have $20 million in the bank, but we're going to be careful with it.

No, that answer, that's very helpful. Just one other question I have. How do you think about the timeline for your potential M&A activity? What should us investors expect over the coming quarters?

I would love to get, let's say, an LOI signed that's non-binding, you know, within let's call it 60 days, you know, 45 to 60. And I'd love to close something, you know, towards the end of the year or definitely the first quarter. I mean, our objective is to get a deal done, frankly, you know, at the end of the fourth quarter. That's our objective. I'm impatient and I've been very patient with it, but the deals just keep coming in and we just want to pick the right one. But I just explained how we structure some of the things and every deal is a little bit different, but I'd love to get a deal done in the fourth quarter.

Thanks, Chuck. That answered my question. Good luck with the acquisition strategy.

Thank you very much. Thank you, Robert. There are no further questions at this time, so I'll hand the floor back over to Chuck Piluso for closing remarks.

Thank you. Thank you all for the questions. Appreciate it. Gives us an opportunity to go a little deeper on some of the things that we feel we're in the direction of. As we look forward, I believe that the company is in a very strong position and we have recurring revenue operating business in Nexus. We've got a solid capital position. And when we say long-term debt, I believe that we don't have any debt, you know, when you look at that, but we'll say no long-term debt. We have a very streamlined corporate strategy that gives us flexibility to pursue these opportunities that we believe that we can enhance their value, and in turn our value, the shareholder value. Our priority now is execution. We are actively evaluating M&A opportunities across several areas of technology.

We are not going to pursue transactions simply for the sake of getting bigger. And we're looking for quality business with quality leadership, recurring revenue and established customer base, strong management teams that are willing to stay and grow the business and the potential to generate more sustainable earnings and cash flow. Do so in a way that we believe can create long-term value for our shareholders. At the same time, we intend to continue building on that momentum at Nexus and strengthening the operating foundation of the company. Nexus continues to provide us with a stable recurring revenue base, established customer relationships, and exposure to ongoing demand for enterprise connectivity solutions. We believe that foundation gives us a solid platform as we evaluate opportunities and broaden our scale, our revenue base and improve our long-term earnings and profile of the company.

Ultimately, the next phase for DTST is about translating our financial flexibility, our operating platform and experience into greater scale, stronger earnings power, and increased shareholder value. Today, for some reason, as I mentioned before, we trade below our cash and marketable securities. However, we recognize that results, not intentions, will determine our success, and our team is focused on delivering measurable progress. We appreciate the continued support from our shareholders, employees, our customers, partners, and we look forward to updating you as we execute on these objectives.

Thank you for joining us today. This concludes today's conference. Thank you for participating. You may now disconnect. Have a good day.

Greetings, and welcome to the Data Storage Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce David Waldman, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Welcome to Data Storage Corporation's 2026 First 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 2026 first 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.

Thank you, David. Good morning, everyone. We appreciate everyone joining us today. The first quarter of 2026 marked another important milestone in the strategic transformation of Data Storage Corporation. Over the past year, we have repositioned the company following the successful sale of our cloud solution business in 2025. And today, we are operating from a position of financial strength, strategic flexibility and operational focus. As many of you know, the sale of the cloud-first business was transformational for Data Storage Corporation. That transaction not only validated the value we created over more than 2 decades, but also provided us with the capital foundation necessary to reposition the company towards what we believe are significantly larger long-term market opportunities.

Following the transaction, we completed a substantial tender offer that reduced our outstanding shares count by approximately 72%, while still maintaining debt-free balance sheet and substantial liquidity. Importantly, the period following the sale was not a pause in activity. It was a period of evaluation of analysis of strategic development. We spent considerable time assessing emerging infrastructure trends, regulatory developments, competitive positioning and areas where we believe meaningful structural market gap existed. What became increasingly clear experimentation into mission-critical software deployment environments.

Across industries such as health care, financial service, insurance, organizations are beginning to deploy Sovereign AI and AI factory environments. On-site equipment, designed to run proprietary AI models on highly sensitive data sets. These are not public AI cloud environments. These are private enterprise-grade AI infrastructures that organizations increasingly rely upon for core operating workflows, security, decision-making, compliance functions and customer-facing processes. As we study this market, we identify what we believe is a critical infrastructure gap. As these systems are deployed, today, we believe there are no widely adopted purpose-built platforms designed specifically addressing recovery, resilience, behavior validation and regulatory compliance to these AI factory environments.

After 2 successful decades operating CloudFirst, we understand the clients' requirements as it relates to meeting their expectations surrounding business continuity. Traditional Data Storage systems focus primarily on restoring hardware or infrastructure uptime, but AI introduces an entirely different challenge that. Enterprises will require a business continuity service and will increasingly need to validate those models of behaving correctly when a situation occurs. That output remains compliant, that inference consistency is maintained and that recovery procedures themselves satisfy the client and regulatory standards. We believe this creates a significantly new category of infrastructure need.

To address this opportunity, we plan to establish Sovereign AI Solutions, a wholly owned subsidiary focused on developing what we describe as an AI continuity control plane for regulated enterprises. Our intention is to create a platform capable of serving as resiliency, recovery, validation and compliance layer for Sovereign AI infrastructure environments. The platform we envision is designed to detect behavioral anomalies, execute validated recovery sequences and generated audit-ready documentation that regulated industries may increasingly require as AI becomes embedded into critical business operations.

Importantly, we believe our approach is differentiated because it focuses not only on infrastructure restoration, but also on preserving operational integrity, compliance posture at the model and behavioral levels. We also believe the market timing is compelling. Earlier this month, several leading AI developers announced multibillion-dollar initiatives designed to integrate AI deeply into the enterprise-wide workflows, further validating large-scale AI deployment across mission-critical environments is accelerating rapidly. While this market remains early stage and rapidly evolving, we believe long-term opportunity could be substantial.

Based on our preliminary analysis, regulatory-driven enterprise AI infrastructure spending could ultimately represent a multibillion-dollar annual market opportunity. At the same time, we are not currently aware of any other purposely built platform, targeting compliance-driven AI recovery for regulated enterprises in the matter we are pursuing. Our focus throughout 2026 will be advancing the platform architecture, redefining our go-to-market strategy, continuing industry engagement discussions and progressing towards potential initial customer opportunities. We expect to provide additional commercial and operational updates as these initiatives advance throughout the year. At the same time, our Nexxis business continues to provide an important operational and financial foundation for DTST.

Nexxis remains a stable recurring revenue business, delivering VoIP dedicated Internet access, SD-WAN and data transport services. During the first quarter of 2026, Nexxis sales increased 10.9% year-over-year, while gross profit increased 32.1% and gross margins expanded to 53.7% compared to 45% in the prior period. We believe these results demonstrate both the continued demand for our connectivity services and operational discipline within the business. Just as importantly, Nexxis provides us with a recurring revenue base and operating infrastructure that supports our broader strategic initiatives. Financially, we believe DTST is well positioned relative to many companies pursuing emerging technology opportunities. We ended the year with no long-term debt, substantial working capital, significant market securities and a highly flexible balance sheet. That strength gives us the ability to remain patient, strategic disciplined on how we allocate capital while SaiS remains our primary strategic initiatives.

We are also continuing to evaluate complementary opportunities, including partnerships, strategic investments, mergers and acquisitions and other transactions that could strengthen our competitive position and enhance long-term shareholder value. Ultimately, our goal is to position DTST at the intersection of enterprise AI infrastructure, resiliency, compliance and mission-critical continuity areas where we believe demand will continue to expand significantly over the coming years. We appreciate the continued support and confidence of our shareholders, and we look forward to updating everyone on our progress as we move throughout 2026.

And I'd like to turn it over to Chris Panagiotakos for a review of the financial results. Chris?

Thank you, Chuck. Good morning, everyone. As previously discussed on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. 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 Nexxis subsidiary. Sales from continuing operations were $347,000 for the 3 months ended March 31, 2026, an increase of $34,000 or 10.9% compared to $313,000 in the prior year. The increase was primarily attributable to continued growth in our Nexxis Voice and Data Solutions business, driven by the addition of new customers and increased spending from existing customers.

Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base. Gross profit for the 3 months ended March 31, 2026, was $186,000, an increase of $45,000 or 32.1% compared to $141,000 in the prior period. Selling, general and administrative expenses for the 3 months ended March 31, 2026, increased $615,000 or 71.8% to $1.5 million from $857,000 for the 3 months ended March 31, 2025. The increase was primarily driven by a $425,000 or 311% increase in noncash stock-based compensation as a result of grants to certain employees during the 3 months ended March 31, 2026. Professional fees increased by $135,000 or 73.6% attributable to higher fees paid relating to legal and consulting services during the period.

Net loss attributable to common shareholders for the 3 months ended March 31, 2026, was $631,000 compared to net income of $24,000 for the 3 months ended March 31, 2025. We ended the quarter with cash, cash equivalents and marketable securities of approximately $9.7 million at March 31, 2026. We used $29.5 million of the proceeds from the sales of marketable securities to repurchase common stock from our shareholders in connection with the tender offer, which closed on January 15, 2026.

Thank you. And I will now turn the call back to Chuck.

Thanks, Chris. Let's open up the call for some questions.

[Operator Instructions] And your first question comes from Matthew Galinko with Maxim Group.

As you pursue the AI strategy. I'm curious how you'll pursue, I guess, developing technical solutions to support the go-to-market. Do you expect to bring developers in-house to the current structure? Or just curious how you'll approach that?

Matt, thank you for the question. What we're doing right now is that just covered across the board essentially is that we have a recruiter working on finding us someone to run the subsidiary. We are hopefully lining up CTOs that we can interview that may want to start off as a consulting basis and handle the overall project. We're talking to 3 -- 4 other companies essentially that want to participate in everything from a subcontracting to them to partnerships for them to do the installation. We came across this because we put out a letter of intent to a company and found out a while ago about Sovereign AI and looking into this and seeing where the holes are. So in doing that, we started finding out, okay, who are the folks that are installing this Sovereign AI? And then as we started looking at this very seriously, we said, well, these are companies that we can use to sub out.

So from a U.S. basis, Eastern Europe and from Indian basis, companies are looking to develop this software that today does not exist. You can do it -- we did at CloudFirst for over 20 years, protecting someone's information and having a run book to get the companies up and going because regulated companies using the cloud with proprietary data, they're pretty much building it themselves. So we're really on all fronts at this point. And so we hope to start building a statement of work probably over the next 30 days. And that might involve probably 3 separate companies, each one having a different discipline. But right now, a number of companies, as I've gone around talking about this, and I'm kind of be somewhat quiet to a degree because you turned them into competitors.

But for the most part, we would say there's probably going to be 3 companies involved with putting this together in the 2 colocation centers is what our intention were to be. But overall, we have to start with someone that's going to be project management, and that's why we have the recruiter going on because there'll be a lot going on, but we've done it before with 10 data centers in 3 countries. We're very similar to that, but the software to flip it over when there's a disaster of some sort. And even though people can say, well, Tier 3 data centers, but everybody that's in Tier 3 data centers today still has to be geographically diverse if they're going to be compliant and a whole list of other things. And that's where we're heading.

Stage 1 will be to make it look like it was almost CloudFirst, but on the GPU side and everything that goes along with GPU and storage,and the second stage of it will be building the software all along to be able to have it flip over and act behaviorally the same way, behavioral point objective, behavioral time objective. So this is very, very much similar that we did with CloudFirst, but it's GPUs, and they are different. But that's so there'll be multiple companies involved. I'm sorry, a short question, a very long answer, but there'll be multiple companies that we're talking to today.

Sure. No, I appreciate all the color. It's helpful to kind of conceptualize what you're doing. Maybe just as a follow-up. Obviously, I think you have a better sense of timing than we do. But will we start to see expenses ramp up maybe in the second quarter or more in the third quarter around the initiative? And so will we see that starting to hit the P&L? Or would investments be capitalized and we won't necessarily see it on the P&L. Just curious how the participation might look or as it's looking today and if that's the right time line to think about?

Sure. Well, rounding our money, we have, let's say, $10 million in the bank. We have some escrows going on still from the Renovus sale. We just settled one on the net working capital with them and have $700,000 that we have come in or coming in over the last week or so. So we do have some cash. The Board approved at a recent Board meeting for us to go out and explore this and line it completely up with all the pieces that are needed. But I think that it will hit the cash, but it won't be I don't want to use the word significant. I can't imagine us spending more than $250,000 to $300,000 on being able to get it to the point of our statement of work part before we say go.

When we say go, it's they're going to be capital expenses. Those capital expenses will be depreciated over 5 years for the most part. So the big hit on the cash, I think most of it would be capital. The software development and all of that, we'll see how we can make arrangements, but that will probably be the part that will be just unknown at this particular point, frankly, on the software side. But there'll be capital expenditures going on. But I think we have enough money to implement this and still have a couple of year run if revenue wasn't generated. But we're hoping to take -- hopefully taking agreements in the first quarter of '27, maybe earlier, of which I'll call reservations versus subscription, but they'll all be recurring revenue.

Yes. That makes sense. And maybe last question, and then I'll jump back in the queue. But I guess referring to that not a subscription. I guess that kind of speaks towards figuring out what capacity you need relative to how many customers you have, but and what their demands are. But can you talk a little bit how you're thinking about how far ahead of demand that you need to build out capacity and how access to GPUs and data center space might look as you progress over the next few quarters?

Well, I'm going to say the next 1 or 2 quarters, we'll just be setting everything all up, hopefully, having it all in place by the end of the year. What's interesting about it is that we're -- we wouldn't be into this -- let's keep buying more and more GPUs, spending $50 billion that you're seeing that's going on. That's not the play here. The play here is essentially to use just an example, take a midsized hospital. A midsized hospital, let's say they're going to spend $1 million and set up their environment. They're going to run logistics for an operating room where they're pharmaceutical and they're building this critical. They might have subscribed to software.

They didn't build it. They install it and it keeps learning and becoming more intelligent. Well, now what are they going to spend to get to the other side to have the compliance in Sarbanes-Oxley, all these things that no one's talking about yet. So now are you going to double that CapEx? Or do you want to go to a service bureau, and we don't believe NVIDIA is going to build a service bureau, by the way, CoreWeave and people like that, they could do it, they're not really focused on it. But for the most part, they now need to have the ability to be able to recover. And so when we talk about this recovery piece, the return on investment seems significant for them. So I would say that when we're looking at this, a midsized hospital is going to need to be able to be compliant. Their confidential information is sitting on their storage remotely, and we have runbooks.

But at some point, it needs to flip over and act the exact same way and recover. So it's -- I don't know if I'm answering that question completely. But that's kind of the model that you're looking at. That could be insurance companies as well, financial institutions. Does that answer your question, Matt? I'm not sure.

It helps. I guess to clarify, I guess when you were hosting CloudFirst and disaster recovery there, you had an idea of how much capacity you needed. But taking the $1 million environment in a midsized hospital, what would be the -- I assume you'll have enough capacity. Are you spending 1 to 5, so your environment would support 5? And how do you balance the investment of customer needs to fail over in the GPU environment versus how much overcapacity you want to build?

Well, the first thing I think we know by now after all these years providing business continuity is that a hospital is going to run this application or multiple applications to improve efficiency and all of that, and they're going to depreciate this equipment over 3 to 5 years that hospital is not going to be in the race to add more and more GPUs and more and more GPUs. So we don't see the growth there. So when you don't -- we don't see them continue to build upon that at the rates that we're seeing folks spending $50 billion. So we can match their equipment on our side. So let's just say, for example, that they want to recover within 15 minutes.

Well, that's going to be a higher-level service, and that's not going to run a ratio. That's going to be 1:1 for them. And that's going to be what we would call high availability in a regular sense. Then there's another layer underneath there, like you are mentioning that, where you're going to run a 5:1 ratio, and 8:1 ratio. The one thing we learned during 9/11 with CloudFirst and then other disasters and storms that all happen is that things can happen geographically within a particular region. So if you run too high of a ratio, you can't support it. So it needs to be coming from different geographies on that. But I would assume that a 5:1 ratio would be successful as long as you could probably run a 10:1 ratio as long as the 10 are in all different parts of the United States.

But I would say on standby type service, where you have run books and all of that, I would say that probably 5:1 would be a good ratio.

Your next question comes from [ Ellen Lidzak ] with Forest Capital.

Can you elaborate on the market opportunity you see for the Sovereign AI solutions and why you think now is the right time to enter the state?

Sure. Thanks, Ellen. The right time, it could be early on it, but if it takes like 6 months, when all of a sudden, we believe that when everyone starts -- everyone looks at AI as a general population of the world now as they go into ChatGPT and they ask a question or Claude and say, design this and design that. The fifth layer of this AI is the business process, and that's the software being developed. And so these 150 executives that OpenAI is putting in place that was in a press release is going out to actually build this software. As this software gets deployed, they're going to need to be compliant the same way all the CPUs have to be compliant in industry that they're using best practices. Today, that's not in existence. It might be all happening in one data center.

So I think it's a matter of time before compliance and regulations start surrounding as more and more organizations regulated organizations are deploying these types of software and services to make them more efficient, to learn better, reduce staff, whatever they're thinking. But that's why these 150 people are being hired because companies are interested. The talent is lacking on it. and we're there to be able to go to Sovereign AI to say, well, you put this in place, how compliant are you? No one, I don't believe anyone is asking that question, and we've been talking to a lot of people. So everyone is focused on learning, training the models, installing equipment, testing it, but they're not there on compliance and all the regulations that went on over the previous years. And that's why I believe it's a very solid business model.

That makes sense. That kind of leads into my next question. What do you think really differentiates the Sovereign AI solutions from traditional disaster recovery, cybersecurity or any enterprise infrastructure providers currently in the market?

I think it's the same thing. Essentially, you can say it's the same thing, but none of the folks that are today in disaster recovery that we know that our research came up with are doing anything like this. Whether they're planning that, I'm not exactly sure, but there's enough room in it. Some of the ratios I've seen is that this is going to be somewhere around 5% to 10% of anyone that's putting Sovereign AI in place. So some numbers I've seen, and it is very tough when you start looking at market numbers is that it's a Sovereign AI is right around a $50 billion total addressable marketplace and 10% is what some of the numbers that I've seen for this type of thing.

But they're rough calculations, and I wouldn't hold me to it. But I know this is -- I have a solid feeling that this is coming. And I do believe that the folks that are in this business that CloudFirst competed with will eventually move into this. I think we might have a head start on it, and I think that, that's important, but there's enough room with 5 or 6 competitors. But right now, if we get this up by the end of the year, and we start talking to people in the fourth quarter, I think we'll have a little bit of a lead because of our background, we know about escalation risk. We know how to do that. We were doing that. We know how to have run books and all the things that went on with that.

So we do understand all of that. And I think it fits in really, really well with this. But we saw the whole -- we saw that come up because we see what's going on with Sovereign AI and AI factories. I heard some numbers from Dell of proposals outstanding. They were just some large numbers. So I'm pretty excited about it.

Definitely very exciting. And I guess in terms of the development time line and then the potential commercialization path for Sovereign AI, what does that look like over the next 12 to 24 months?

Everything is about execution. We all know that. So initially, we were going to try to do everything and then launch. And then studying it some more. We felt maybe the thing to do is to do a 2-stage approach. Let's get this up and going without the behavioral side of it. So that these are regulated organizations, they can be protected, but it's going to be different. It might not move over the exact same way right away behaviorally. You have the run book and all of these things. But the first stage will be to stand it up start taking reservations, which I want to call it reservations instead of subscription and get it moving so they can start testing and coming over to us. And then from the very beginning, let's just say, within 60 days, software starts to get developed.

So by the time everything gets deployed on the hardware side, staffing is in place. Hopefully, it's not going to take more than 9 months. There's some software out there that you can work with, but a lot has to be developed. So it just doesn't exist. We dealt with this with our IBM systems with -- precisely that did a roll-up of all the software companies we used for 15-plus years. And so -- and we think there'll be very, very good value in owning the software as well. But that's kind of the time line like.

Okay. Well, that's great. And are you currently evaluating any like strategic partnerships, acquisitions or maybe even like investments that could potentially accelerate this AI infrastructure strategy?

I originally wanted to do and I still -- we still made a joint venture, folks that are already set up that are installing Sovereign AI today. and to do a joint venture because they have the staff already in place, and they have the knowledge of it. And it's great for them and that becomes an automatic partner because they're installing AI factories and Sovereign AI. But we are talking to folks to be partners. One of the problems, Ellen, is that when you're small, a lot of times, you're not going to be able to get larger organizations to go with you because that credibility is not there. They want to see a $1 billion company. Even though the $1 billion company can be insolvent, just for the most part, they want to see a very large scope.

So typically working through partners and that's how we did it at CloudFirst as well. When you get that very large deal, you bring in a partner on it. But we are looking at joint ventures, we're looking at partnerships. We're not really looking at investments at this time. We don't feel that that's necessary, frankly. I think we can do this with money in our bank and still leave a 2-year run rate because the public company is expensive. It runs probably around, I'd say, $1.8 million to $2 million a year. But we have enough. I think we have enough to pull this off, but I'll know more over the next 90 days. But we're trying to move pretty fast with it.

And our next question comes from Matthew Galinko with Maxim Group.

I appreciate you taking another one for me. Just wanted to check in on Nexxis and kind of the current revenue generator for the business. I think you had decent annual growth in the first quarter here. Any opportunities to -- or how do you see that business trending over the rest of this year? Do you have an opportunity to accelerate that in any capacity? And do you see it continuing to add to kind of cut into the burn rate, I guess, as it grows?

Matt, the gross margins are great. We have put some money into Nexxis. They're not a large staff, John Camello, who is the President of that, he owns 20% of that company. John and his staff do an excellent job. John continues to look for business development types to accelerate it. And I know that he's trying to recruit as we speak right now, he's trying to recruit business development folks to go. It's very, very difficult, the organic growth, but they're doing a great job with it. We looked at 2 -- 1 or 2 acquisitions to roll it into that company. and we're still looking at that. But I think if John gets successful, we're getting the right -- he is successful, we're getting the right people on to grow that.

I also believe, Matt, that because they're very limited with manpower that getting a digital agency to start getting inbound leads going is one of the things that we've been talking about CloudFirst had a great flow of leads. Hal Schwartz did a great job with the digital agency and everything that he did on that to get significant leads coming in. And so we need that to happen and then these business development folks to work on that because no one's answering the phone, no one is letting you in the building. So John does a great job and his staff with association meetings and organizations and sponsorships, things like that.

But that next step, I think, is Chris to free up some money for him to get the website going where he can get an inflow of the way that CloudFirst done. And I think that's the next stage, but he is trying to recruit the folks in the business development area. He needs the help there because he's got great growth margins and does a good job, has a great product -- the product is great.

There are no further questions at this time. So I'll hand it back to Chuck Piluso for closing remarks.

Thank you. Thank you for the questions. They were very deep questions, some of them. And Ellen, they were great. Hopefully, shortly, we'll be back to everyone, but thank you for the questions. In closing, we believe the foundation we've established over the decades of execution and value creation has positioned DTST to pursue a unique opportunity at the intersection of enterprise AI, resiliency and regulated infrastructure. Our strategy is supported by financial strength, operational stability and what we believe is a differentiation of long-term vision for AI continuity infrastructure.

As the market continues to evolve, our focus remains on a disciplined execution, strategic flexibility and creating substantial long-term value for our shareholders. We really do appreciate everyone's continued support in our shareholders and look forward to sharing additional updates as we progress. Thank you.

Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.

Greetings, and welcome to the Data Storage Corporation Fiscal Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Alexandra Schilt, Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 Fiscal Year 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 fiscal year 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.

Thanks, Allie. Good morning, everyone, and thank you for joining us. First, I would like to acknowledge the delay in reporting our fiscal year 2025 results. which was necessary to allow additional time to complete our year-end audit. This was primarily driven by the complexity of several significant transactions during the year, including the sale of our CloudFirst subsidiary, the classification and settlement of many of our outstanding warrants and the completion of a tender offer.

However, we are pleased to be here today to discuss our results in more detail. 2025 was the most consequential year for Data Storage Corporation's 25-year history. It was a year defined not just by strong financial results by decisive action. Action that fundamentally reshaped our company, strengthened our balance sheet and positioned us for a new phase. Over the past year, we made deliberate choice to unlock the value we had spent more than 2 decades building and redirect that value towards what we believe is a significantly larger opportunity ahead.

We executed on that strategy in 3 critical ways. First, we monetized CloudFirst for a total transaction value of $40 million. That transaction generated approximately $31.6 million in net proceeds and a $20.1 million gain. We sold a strong asset at full value because we believe that capital could be deployed into opportunities with greater long-term potential. At closing, we had an estimated $41 million in the bank based on our cash balance of $10 million plus the sale of CloudFirst.

Second, we returned $29.3 million of that capital directly to shareholders through a tender offer at $5.20 per share, reducing our outstanding share count by approximately 72%. That level of capital return is rare for a company of our size and reflects a core principle of ours, capital belongs to the shareholders. And when we generate it, we allocate it responsible, whether that means returning it or investing it for growth.

Third, we reset the company. We entered 2026 debt-free with over $10 million in capital, a clean balance sheet and at this point, a simplified operating structure. From a financial standpoint, these actions resulted in record performance. We reported a net income of $19.2 million for the year compared to $500,000 for 2024. At the same time, I want to be very clear with investors this level of profitability reflects the CloudFirst transaction and other nonrecurring events. It does not yet represent earnings power of DTST, and we are being intentional and transparent.

What it does demonstrate is our ability to create value and recognize and to realize that value and to act with discipline in how we allocate capital. Today, our core operating business is Nexxis and it's performing. In 2025, Nexxis generated $1.4 million in revenue, representing a 13.4% year-over-year growth. Gross margins expanded to 44.4%. And importantly, we improved the quality of the business by reducing customer concentration, with no single customer accounting for more than 10% of the revenue.

Nexxis is lean, subscription-based recurring revenue business with improving margins and real operating leverage. And that brings us to the most important part of our story. What comes next? We have deliberately positioned DTST as a NASDAQ-listed acquisition platform with capital, flexibility and a clear mandate to identify, acquire and scale high-quality businesses in large and growing technology markets. We are actively evaluating opportunities in areas where we believe we have both a strategic alignment and the ability to add value, including AI-enabled vertical SaaS GPU infrastructure, cybersecurity and SOC-related services as well as scalable technology businesses with recurring revenue models.

These are not abstract targets. These are markets with significant tailwinds where disciplined capital deployment can drive meaningful long-term returns. In fact, we've already identified and are actively pursuing a number of strategic opportunities with an emerging GPU infrastructure segment in enterprise technology. These areas are being shaped by strong tailwinds, including a rapid adoption of AI-driven workloads, ongoing data architecture, modernization and increasing demand for scalability, resilient digital infrastructure.

Our focus remains on large evolving markets where demand visibility is high, and we believe we can deploy capital in a disciplined, accretive manner with an emphasis on opportunities that are offering compelling, risk-adjusted returns and clear avenues for long-term value creation. We are actively advancing these initiatives, positioning ourselves to stay agile and selective as they're developed. We expect to provide meaningful updates in the near term as these opportunities evolve.

Importantly, we are only pursuing opportunities where we understand the consumer behavior and business deeply, and where we see a clear and credible path to value creation. At the same time, we are focused internally on improving efficiency. As we move through 2026, we expect corporate overhead to decline meaningfully as we transition from CloudFirst divestiture is completed. Our objective is to ensure that the earning power of this company is driven by operations, not onetime events.

So when you step back and you look at DTST today, what you see is a company that has undergone a complete transformation. We have moved from a traditional cloud-based managed service model to a streamlined, well-capitalized platform with flexibility to pursue higher growth, higher-margin opportunities. We have demonstrated that we can build value that we are willing to realize it when the timing is right. And now we are focused on the next phase, building a company defined by our sustainable growth, disciplined execution and long-term shareholder returns.

2025 was about realizing value. 2026 and beyond will be out seeking opportunities, bringing together synergistic companies and creating shareholder value. Now I'd like to turn the call over to Chris Panagiotakos for a review of our financial results. Chris?

Thank you, Chuck. Good morning, everyone. As discussed on our last call, on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. 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 Nexxis subsidiary.

Sales from continuing operations were $1.4 million for the year ended December 31, 2025, an increase of $164,000 or 13.4% compared to $1.2 million in the prior year. The increase was primarily attributable to continued growth in our Nexxis Voice and Data Solutions business driven by the addition of new customers and increased spending for existing customers.

Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base. Selling, general and administrative expenses for the year ended December 31, 2025, increased $348,000 or 9.1% to $4.2 million from $3.8 million for the year ended December 31, 2024. The increase was primarily driven by a $507,000 or 101.6% increase in noncash stock-based compensation primarily related to the accelerated vesting of equity awards in connection with the sale of the CloudFirst business, which triggered a fundamental transaction clause in equity award agreements with employees.

Salaries and director fees increased $166,000 or 9.8% attributable to annual merit-based salary adjustments and bonuses. These increases were significantly offset by a $301,000 or 22.8% decrease in professional fees, primarily related to lower legal and consulting expenses in the current year. We expect expenses to decrease for the year ended December 31, 2026, as compared to the year ended December 31, 2025, since a significant number of its employees are no longer working for us and instead are working for the buyer of CloudFirst business, and we anticipate having lower legal and accounting costs.

Net income attributable to common shareholders for the year ended December 31, 2025, was $19.2 million compared to net income of $523,000 for the year ended December 31, 2024. The significant increase in net income for the 2025 fiscal year was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash, cash equivalents and marketable securities of approximately $41 million at December 31, 2025, compared to $12.3 million at December 31, 2024.

Thank you. I will now turn the call back to Chuck.

Thanks, Chris. Before we open the call to questions, I just want to reinforce what we believe we're entering into an exciting new phase. We attended the NVIDIA conference a few weeks ago, which reinforced the magnitude of the opportunity emerging across both technology and business. The pace of innovation and the scale of investment underway are substantial, signaling a transformation shift across industries.

At the same time, it sharpened our approach rather than competing directly in a capital-intensive area, such as the billions being deployed into GPUs and core infrastructure, we are focused on a disciplined participation. We have identified several key areas to focus to pursue that -- and we are advancing them deliberately allocating capital thoughtfully and concentrating on opportunities we see a clear differentiation and the potential to drive meaningful long-term value.

Now I'd like to open it up for questions. Operator?

[Operator Instructions] Our first question comes from the line of Matthew Galinko with Maxim Group.

And congratulations on getting to this point in the transition. 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?

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.

No, I appreciate the color. And 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?

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.

Got it. 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?

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?

So I think the burn rate for 2026 will be probably about $2 million for the year. being a public company.

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.

[Operator Instructions] Mr. Piluso, I see no other questions at this time. I'll turn the floor back to you for final comments.

Thank you. Thanks for the questions, Matt. As we enter this next phase from a position of real strength with capital on the balance sheet and a clean simplified structure and a clear strategic mandate. That combination gives us the ability to be selective, to be disciplined and to focus only on opportunities that we believe can create meaningful long-term value for our shareholders.

At the same time, we remain grounded in execution. Our priorities are clear: Continue improving performance of Nexxis, deploy capital thoughtfully into areas that enhance our scale, expand our margins and strengthen the overall quality of our earnings. We are building with intention, and we are building for durability. And we do appreciate the trust and support of our shareholders. We look forward to updating you on our progress as we move through 2026 and execute on the opportunities ahead. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Data Storage Corporation Third Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Alexandra Schilt, Investor Relations. Thank you. Please go ahead.

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.

Thank you, Alex. We appreciate everyone joining us today. First, I want to acknowledge the delay in the reporting of our financials. We require 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. That provided 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 interest.

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 a plan to launch our new corporate website in the coming weeks to highlight the company's streamlined profile and future direction.

Before discussing our 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.

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 Nexxis subsidiary.

Sales from continuing operations, which consists of our Nexxis subsidiary, were $417,000 for the 3 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 9 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 Nexxis Voice and Data Solutions business.

Selling, general and administrative expenses for the 3 months ended September 30, 2025, increased $313,000 or 31.8% to $1.3 million from $984,000 for the 3 months ended September 30, 2024. The increase was primarily driven by an increase in noncash stock-based compensation, primarily related to the accelerated vesting of equity awards in connection with the divestiture which triggered a fundamental transaction cause 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 9 months ended September 30, 2025, increased $376,000 or 13.1% to $3.2 million from $2.9 million for the 9 months ended September 30, 2024. The increase was primarily driven by an increase in noncash stock-based compensation, primarily related to the accelerated divesting of equity awards in connection with the divestiture, which triggered a fundamental transaction cause 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 3 months ended September 30, 2025, was $16.8 million compared to net income of $122,000 for the 3 months ended September 30, 2024. Net income attributable to common shareholders for the 9 months ended September 30, 2025, was $16.1 million compared to net income of $235,000 for the 9 months ended September 30, 2024. The significant increase in net income for the 2025 3- and 9-month period 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. The 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.

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, cybersecurity, but we are approaching these opportunities carefully and strategically. They remain areas of active interest, not current commitments.

Our Nexxis subsidiary continues to perform well and provides a stable recurring revenue base. We see ongoing opportunities to expand Nexxis 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. Launched 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 Nexxis, our core operating platform today. Our experience and disciplined management philosophy, combined with our NASDAQ listing, a clean balance sheet, 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?

[Operator Instructions]. Our first question today is coming from Matthew Galinko of Maxim Group.

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?

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.

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 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?

Chris, do you want to answer that, Chris?

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.

Got it. Very good. And then one more, and then I'll jump back in the queue. But 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?

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 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. 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.

[Operator Instructions]. Our next question is coming from [ Sean Lee ] of Private Investor.

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

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.

Thank you.

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

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 in enterprise infrastructure while maintaining conservative and focused approach.

I'd like to thank our employees, our Board of Directors, advisers 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.

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.