Data Storage Corporation Common Stock 2026 Q2 Earnings Call

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2026 second 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 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 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 would now like to turn the call over to Chuck Piluso. Please go ahead, Chuck. Thank you, Ally.

Good morning, everyone. We appreciate everyone joining us today. The second quarter advanced transformation of Data Storage Corporation following the sale of CloudFirst. We are 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, Nexxis 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. Nexxis gives us recurring revenue and operating foundation in communications and connectivity while we execute a broader strategy. Second, our balance sheet 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, and 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. The common thread is straightforward. Recurring 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 Nexxis. Nexxis provides fully managed business voice, internet, data transport, and SD-WAN solutions designed for the enterprise. It 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 Nexxis 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. We view Nexxis not simply as a legacy business, but as an operating asset that gives DTST recurring customer relations, 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. I'd like to turn it over to Chris 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 CloudFirst 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, specifically our Nexxis 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 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 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.