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Data Storage Corp (DTST)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $8.08M, down 1.8% YoY due to lower equipment sales; core Cloud Infrastructure and Disaster Recovery services grew 14% YoY, supporting stable gross profit of $2.86M .
  • Adjusted EBITDA was $0.50M; net income attributable to common shareholders was $0.02M; diluted EPS was $0.00*, below consensus $0.10*, and revenue modestly missed the $8.30M* consensus .
  • Strategic progress: CloudFirst expanded UK footprint via Pulsant partnership; management emphasized recurring revenue scale, high retention, and exploring strategic alternatives given perceived undervaluation .
  • Liquidity remains solid with $11.1M in cash and marketable securities and no long-term debt, supporting expansion investments (e.g., UK) .

What Went Well and What Went Wrong

What Went Well

  • 14% YoY growth in Cloud Infrastructure & Disaster Recovery services; CEO: “CloudFirst Technologies continues to operate profitably…a scalable, recurring revenue engine” .
  • UK expansion accelerated via Pulsant partnership, embedding IBM Power-based offerings across UK edge data centers, improving regulated client reach .
  • Execution win: major infrastructure upgrade for a long-time food distribution client, migrating to high-performance IBM processors and enabling direct cloud connectivity to AWS/Azure/GCP .

What Went Wrong

  • Total revenue declined 2% YoY (to $8.08M) due to reduced one-time equipment sales; SG&A rose ~$0.20M YoY on professional fees, stock comp, and headcount .
  • Adjusted EBITDA fell YoY to $0.50M (vs. $0.68M) amid investment in UK build-out (~$0.45M in Q1), pressuring near-term profitability .
  • Operating cash flow was negative ($1.10M) on AR build and working-capital timing; diluted EPS was effectively $0.00* vs. $0.10* consensus .

Financial Results

P&L vs prior year, prior quarter, and consensus

MetricQ1 2024Q4 2024 (computed)Q1 2025 ActualQ1 2025 Consensus
Revenue ($USD)$8.236M $6.416M (FY $25.371M − 9M $18.955M) $8.084M $8.300M*
Gross Profit ($USD)$2.966M $3.217M (FY $11.103M − 9M $7.886M) $2.860M —
Adjusted EBITDA ($USD)$0.680M —$0.497M $1.100M*
Net Income Attrib. to Common ($USD)$0.357M $0.288M (FY $0.523M − 9M $0.235M) $0.024M —
Diluted EPS ($USD)$0.05 —$0.00*$0.10*
  • Values marked with * retrieved from S&P Global.

Margins (percentages)

MetricQ1 2024Q2 2024Q3 2024Q1 2025
Gross Profit Margin %36.02%*49.04% 43.24% 35.38%*
EBITDA Margin %6.18%*-1.01%*5.71%*3.35%*
EBIT Margin %2.60%*-7.92%*-0.44%*-1.14%*
Net Income Margin %4.34%*-4.97%*2.11%*0.30%*
  • Values marked with * retrieved from S&P Global.

Segment/Unit Performance (Adjusted EBITDA)

UnitQ1 2024Q1 2025
CloudFirst Technologies$1.273M $1.503M
CloudFirst Europe Ltd.$(0.056)M $(0.427)M
Nexxis Inc.$(0.537)M $(0.578)M
Corporate$— $—
Total Adjusted EBITDA$0.680M $0.497M

KPIs

KPIQ3 2024Q4 2024Q1 2025
Annual Recurring Revenue (ARR) run-rate—$21.5M “A little over $22M” (estimate)
Total contract value (billing contracts)—$39.2M >$41M (initial contract terms) with >95% auto-renew clauses
Data centersChicago site added; UK presence noted 10 global sites Operating across UK edge data centers via Pulsant
Clients/contracts scale——~400 clients; >600 contracts

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal financial guidance (Revenue/EPS/EBITDA)FY2025NoneNone (advised against instituting formal guidance) Maintained
ARR run-rateFY2025$21.5M (as of YE 2024) “A little over $22M” estimate Raised (run-rate)
CloudFirst Europe rampQ4 2025; Jan 2026Not previously specifiedRevenue expected to begin in Q4 2025; breakeven targeted January 2026 New qualitative timing
UK investmentQ1 2025—~$0.45M invested in Q1 New disclosure
Buybacks/warrantsN/A—Board evaluating strategic alternatives; focus may be on warrants rather than common buyback given organic growth priorities New qualitative color

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
UK/Europe expansion (partners, footprint)Established UK presence; Chicago data center; UK partnerships emerging Launched CloudFirst Europe; three Tier III UK data centers; appoint UK MD Pulsant partnership; equipment installed in 3 UK data centers; ~10 partnerships/distributors; training underway Scaling execution; go-to-market building
Recurring revenue/ARR focusProfitability, margin expansion; shift to recurring subscriptions ARR run-rate $21.5M; >80% recurring revenue ARR estimate >$22M; >95% auto-renew in contracts Strengthening; higher visibility
Strategic alternatives/valuation—Undervaluation discussed; evaluating options Continuing to evaluate strategic alternatives; market undervaluation vs fundamentals Active Board-level topic
IBM Power specialization; regulated sectorsMultiple contract wins in insurance/healthcare; compliance strengths Emphasis on IBM Power platform advantage EU regulatory/security alignment; certifications; migration expertise vs IBM Consistent differentiator
Capex/OpEx discipline—FY2024 Capex ~$1.2M; UK Capex ~$0.58M Q1 UK spend ~$0.45M; limited incremental Capex expected near term Investment front-loaded; discipline maintained

Management Commentary

  • CEO: “CloudFirst Technologies continues to operate profitably on a standalone basis and serves as a scalable, recurring revenue engine…partnership with Pulsant…positions us to serve regulated and enterprise clients more effectively throughout the U.K. and Europe.” .
  • CFO: “Our core cloud infrastructure and disaster recovery services remain strong performers…total revenue had a modest decline due to reduced equipment sales…adjusted EBITDA reached $497,000…ongoing commitment to operational efficiency.” .
  • CEO on valuation: “Our stock price does not…reflect the value of the business…we will continue to seek ways to unlock value…actively evaluating a range of strategic alternatives to unlock and deliver long-term shareholder value.” .

Q&A Highlights

  • Europe ramp: Equipment installed in 3 UK data centers; ~10 distribution partnerships; training underway; expect revenue start Q4 2025 and monthly breakeven by Jan 2026; Q1 investment ~$0.45M .
  • ARR and contracts: ARR estimate “a little over $22M”; total contract value in excess of $41M with >95% auto-renew clauses; 10% price uplift at renewal in many contracts .
  • Guidance process: Management advised against formal quarterly/annual guidance despite encouragement; focus remains on execution and valuation alternatives .
  • Capital allocation: Board discussing strategic alternatives; preference to preserve cash for organic growth and potential larger acquisitions; potential focus on warrant overhang vs. common buybacks .

Estimates Context

  • Q1 2025 versus S&P Global consensus: Revenue $8.08M vs. $8.30M* (miss); Adjusted EBITDA $0.50M vs. EBITDA consensus $1.10M* (miss); Diluted EPS $0.00 vs. $0.10* (miss).
  • Next quarters (limited coverage): Sparse Street coverage; emphasis should be on ARR and recurring mix trajectory given limited consensus data.
  • Values marked with * retrieved from S&P Global.
MetricQ1 2025 ActualQ1 2025 Consensus
Revenue ($USD)$8.084M $8.300M*
EBITDA ($USD)$0.271M (SPGI EBITDA actual)*/$0.497M Adjusted $1.100M*
Diluted EPS ($USD)$0.00*$0.10*
  • Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Core recurring cloud services are growing double-digits (14% YoY) even as total revenue dips on lower equipment sales; the mix shift increases quality of revenue and should support margin durability over time .
  • Near-term profitability is pressured by UK ramp costs (~$0.45M in Q1) but management laid out a revenue start (Q4 2025) and breakeven timeline (Jan 2026), improving mid-term visibility .
  • Contract structure (auto-renew, uplift potential) and ARR momentum (> $22M estimate) provide embedded growth and pricing power; watch renewal execution and uplift realization .
  • Multiple levers to address valuation disconnect are under evaluation (strategic alternatives, warrant overhang); any corporate action could be a stock catalyst .
  • Liquidity ($11.1M cash & marketable securities) and no long-term debt provide flexibility to fund growth while preserving optionality around capital allocation .
  • For trading: Q1 was a trifecta miss vs. consensus on revenue/EPS/EBITDA*, but narrative strength in recurring growth, UK expansion milestones, and strategic alternatives may drive sentiment; monitor next disclosures and UK commercialization progress.
  • For the medium-term thesis: Differentiation in IBM Power workloads and regulated market compliance, growing partner ecosystem (Pulsant, Megaport), and improving ARR mix position the company to compound value as international scale translates into revenue .
Notes:
- All values with * are retrieved from S&P Global.
- Q4 2024 quarterly figures for revenue, gross profit, and net income are computed using FY 2024 and 9M 2024 press release totals with citations provided.

Citations:
Press releases and 8-K: **[1419951_7d961bf47a744cc7be9a1f923125ff6b_0]** **[1419951_7d961bf47a744cc7be9a1f923125ff6b_1]** **[1419951_7d961bf47a744cc7be9a1f923125ff6b_5]** **[1419951_7d961bf47a744cc7be9a1f923125ff6b_6]** **[1419951_0001731122-25-000749_e6603_ex99-1.htm:0]** **[1419951_0001731122-25-000749_e6603_ex99-1.htm:5]** **[1419951_0001731122-25-000749_e6603_ex99-1.htm:6]**
Q1 2025 call transcript: **[1419951_DTST_3428644_1]** **[1419951_DTST_3428644_2]** **[1419951_DTST_3428644_3]** **[1419951_DTST_3428644_4]** **[1419951_DTST_3428644_5]** **[1419951_DTST_3428644_6]** **[1419951_DTST_3428644_7]** **[1419951_DTST_3428644_8]** **[1419951_DTST_3428644_9]** **[1419951_DTST_3428644_10]** **[1419951_DTST_3428644_11]**
Prior quarters: Q3 2024 PR **[1419951_22ddb021cb3848288b2c6f0d7ed54232_0]** **[1419951_22ddb021cb3848288b2c6f0d7ed54232_1]** **[1419951_22ddb021cb3848288b2c6f0d7ed54232_7]**; Q2 2024 PR **[1419951_dbb3b65bc2464bb391416f06e4bda937_1]** **[1419951_dbb3b65bc2464bb391416f06e4bda937_6]** **[1419951_dbb3b65bc2464bb391416f06e4bda937_7]**; FY 2024 PR **[1419951_1996ec9a3726466dbf6994e15dd4d94e_0]** **[1419951_1996ec9a3726466dbf6994e15dd4d94e_1]** **[1419951_1996ec9a3726466dbf6994e15dd4d94e_6]** **[1419951_1996ec9a3726466dbf6994e15dd4d94e_8]**
UK partnerships: Pulsant **[1419951_5c17b21ac62f43869e48433a01d5601c_0]**; Megaport **[1419951_7b2f98a4cf66457f83d6742c1a188db8_0]**