Prepared remarks
Greetings, and welcome to the Data Storage Corporation Third Quarter Earnings Conference Call. 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 required 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 repositioned 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 a 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 interests. 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 clause 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 services 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 relating to the accelerated divesting of equity awards in connection with the divestiture, which triggered a fundamental transaction clause 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 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 periods 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 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, and 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. We will launch 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 and a clean balance sheet with 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?
Questions and answers
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?
It's hard to predict that. I've run several models and talked with some of our larger investors since we announced the tender. If we tendered everything, I think the lowest estimate would be around $5 million, and at the higher end, it could be between $10 million and $15 million. So, it seems to be in that range, but it's challenging to forecast with certainty. It's really just an estimate with a low confidence level. We also have a $10.8 million ATM available if we identify the right opportunity that increases shareholder value without dilution. Ideally, we'd like to retain at least $10 million to $11 million in the company. As we seek acquisitions, whether through the ATM or otherwise, our aim isn't to dilute everything unnecessarily. We're focusing on creating a pipeline of potential acquisitions and I'm pushing to finalize something by the end of March. However, smaller companies often need time to get audited. We've realized that companies valued under $5 million or $10 million are problematic, so we need to shift our focus to companies valued between $10 million and $20 million. We would consider more if we come across a target with the right type of bank debt. So, in summary, if I had to guess, I would be pleased with a position between $10 million and $15 million.
Got it. I appreciate the information. As a follow-up, I have a housekeeping question. You mentioned there were nonrecurring fees in '24 compared to '25 and SG&A. Was there anything in the SG&A for the third quarter of '25 that was nonrecurring? Should we expect to see SG&A decrease in the fourth quarter as we move past the major part of the segment carve-out? Or is the SG&A number from the third quarter a good reference point to consider?
Chris, do you want to answer that?
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 put it this way. John Camello is doing an excellent job managing Nexxis, and we are gradually expanding his small team. The platform and its infrastructure make it straightforward for us to acquire a VoIP company valued at around $5 million. Many VoIP companies, not all, derive about 40% of their revenue from Internet access data services. We can acquire these firms at a reasonable multiple. There tends to be limited loyalty when it comes to dial tone services; as long as we maintain good customer service, it's often easy to retain that customer base. We have experience with roll-ups in telecommunications from years ago, so this approach is not unfamiliar. The technology landscape has evolved, and current multiples are fairly moderate. We are actively seeking VoIP and data access companies similar to what John is managing to enhance our offerings. I don’t want to say it’s easy, but I believe that John can quickly grow from $1.5 million in revenue to $5 million, and then to $10 million. While it may not create immediate excitement in terms of shareholder value, running the pulp company incurs certain expenses. Our public company usually has an annual run rate of around $2 million. Therefore, acquiring steady dial tone revenue and data circuits that John oversees could help minimize or even eliminate that financial burn. So yes, this is a solid focus. Regarding the AI sector, particularly with GPUs, it remains quite volatile. Some companies with $750 million in revenue have valuations soaring to $16 billion. We are monitoring this space and have several ideas. We have been in discussions with various parties. As for Nexxis, it presents a straightforward opportunity because John has developed a strong platform and billing system that support our efforts. Additionally, one of our board members, who previously sold a business to Magic Jack for a substantial amount, is assisting us by connecting with brokers to initiate conversations with VoIP and data access companies.
Our next question is coming from an unidentified private investor.
I'm curious about your thoughts on the tender offer. Is it likely to happen or what do you think the probability is?
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 a 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.