Sign in

You're signed outSign in or to get full access.

DS

Data Storage Corp (DTST)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue was $5.15M, up 4.8% YoY, but below S&P Global consensus of $6.20M; diluted EPS was -$0.10 vs consensus -$0.03, driven by higher SG&A (+19% YoY) and Europe ramp costs; gross profit was $2.54M . The revenue and EPS were both misses versus consensus estimates from S&P Global*.
  • Management highlighted the proposed $40M sale of CloudFirst with expected net proceeds of ~$24M and a Board-authorized tender offer to repurchase up to 85% of outstanding shares using 85% of cash on hand, positioning for a return of capital and strategic pivot to AI/cybersecurity/SaaS .
  • Cash and marketable securities were $11.1M at quarter-end, with no long-term debt, providing liquidity for strategic initiatives despite a net loss of $0.73M in Q2 .
  • Strategic narrative centers on unlocking value via CloudFirst sale, rebranding, and expansion into AI/cybersecurity vertical SaaS; UK build-out is progressing (3 data centers, ~10 partnerships), with added sales and tech hires to drive pipeline conversion .
  • Near-term catalysts: shareholder vote on 9/10/2025 for CloudFirst sale and subsequent tender offer; either path (sale or no sale) includes continued focus on recurring subscription growth and value-creation actions .

What Went Well and What Went Wrong

What Went Well

  • Subscription revenue growth: Cloud infrastructure & disaster recovery increased by ~$0.19M (+6.1% YoY); Nexus services +$0.05M (+17.3% YoY), supporting the mix shift to recurring sales .
  • Strategic value unlock: “At $40,000,000 the deal represents a substantial premium… approximate net amount is $24,000,000… that can be returned to shareholders and reinvested in future growth.” — CEO Charles Piluso .
  • Clear forward strategy: “We are investing in next gen growth verticals like AI, cybersecurity and SaaS… we are confident that either path leads to a stronger, more focused and ultimately more valuable Data Storage Corporation.” — CEO .

What Went Wrong

  • Revenue/EPS miss: Actual revenue $5.15M vs S&P Global consensus $6.20M*; EPS -$0.10 vs -$0.03*, reflecting SG&A up ~$0.54M (+19.2% YoY) and European ramp costs hitting COGS .
  • Profitability compression: Loss from operations widened to -$0.80M (vs -$0.39M in Q2 2024); net loss attributable rose to -$0.73M (vs -$0.24M YoY) .
  • Equipment/software declines: Equipment and software sales fell ~$0.10M (-12.1% YoY), continuing pressure from lower non-recurring sales; management cites strategic shift toward subscriptions .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD)$4,910,492 $8,083,756 $5,146,922
Gross Profit ($USD)$2,407,893 $2,859,896 $2,536,754
Loss from Operations ($USD)-$388,786 -$92,509 -$795,667
Net Income (Loss) Attributable ($USD)-$244,240 $24,078 -$733,049
Diluted EPS ($)-$0.04 — (not disclosed) -$0.10
Q2 2025 vs Estimates (S&P Global)ActualConsensus*Surprise
Revenue ($USD)$5,146,922 $6,200,000*Miss
Primary EPS ($)-$0.10 -$0.03*Miss
EBITDA ($USD)Not disclosed $100,000*N/A

Values marked with * retrieved from S&P Global.

Revenue Drivers (Q2 2025 YoY)

CategoryYoY Change ($USD)YoY % Change
Cloud Infrastructure & Disaster Recovery+$193,000 +6.1%
Nexus+$48,000 +17.3%
Equipment & Software-$95,000 -12.1%

KPIs

KPIQ2 2025Commentary
Cash & Marketable Securities ($USD)$11.1M No long-term debt
ARR (estimate) ($USD)>$22M (run-rate) CFO commentary
Total contract value (current contracts) ($USD)>$41M Majority auto-renew (>95%) per CFO
Pipeline (TCV) ($USD)~$10–$11M typical opportunities Weighted by probability
CloudFirst EBITDA (Q2) ($USD)~$1.0M Business remains cash-generative per CEO

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Tender Offer (repurchase up to 85% of shares using 85% of cash on hand)Post-shareholder approvalN/AAuthorized by Board; will include net sale proceeds Announced
CloudFirst Sale (gross/net proceeds)Contingent on 9/10/2025 voteN/A$40M gross; ~$24M net expected Announced
Capital Allocation Post-SalePost-transactionN/A85% cash to tender; retain 15% for acquisitions/innovation Announced
Strategic FocusOngoingN/ARebranding; invest in AI, cybersecurity, vertical SaaS; continue Nexus Announced
Europe (UK) ramp2025–2026N/AExpect Q4 2025 billing; target Jan 2026 breakeven New timeline guidance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
AI/Technology initiativesEmphasis on IBM Power specialization and multi-cloud DR/hosting Continued platform differentiation; partner ecosystem growth Strategic pivot to AI/cybersecurity/AI vertical SaaS; rebranding Expanding scope beyond infra
Europe (UK) expansionUK launch; 3 Tier III DCs; partnerships; CapEx ~$575k in 2024 Installed in 3 UK DCs; ~10 partnerships; training underway; ~$450k investment in Q1 3 DCs active; ~10 partnerships; added sales/tech staff; funnel building Execution progressing; costs elevated
Recurring revenue/ARRARR $21.5M run-rate; ~80% recurring revenue ARR estimate >$22M Subscription growth sustained; cloud & Nexus up YoY Stable-to-growing
Capital allocation/valuationFrustration with public valuation; buybacks/warrants considered Evaluating strategic alternatives; guidance disfavored CloudFirst sale + tender offer to unlock value Shift to corporate action
Equipment/software salesDecline consistent with strategy One-time equipment sales down; mix shift Equipment/software -12.1% YoY Continued decline (strategic)
Compliance/securityCertifications and regulatory wins highlighted UK/EU regulatory readiness; secure private connectivity Security/compliance value proposition maintained Ongoing focus

Management Commentary

  • “At $40,000,000 the deal represents a substantial premium… approximate net amount is $24,000,000… that can be returned to shareholders and reinvested in future growth.” — Charles Piluso, CEO .
  • “Our Board has authorized a tender offer to purchase up to 85% of the company's outstanding common stock using 85% of the cash on hand… including the proceeds from the sale.” — CEO .
  • “These opportunities span artificial intelligence, cybersecurity and AI vertical SaaS solutions.” — CEO on strategic pivot .
  • “Total sales for the three months ended 06/30/2025 were $5,100,000… increase… driven by continued growth in subscription based services… Cloud infrastructure and disaster recovery revenue increased by approximately $193,000… Nexus… +$48,000… partially offset by a decrease in equipment and software sales approximately 95,000.” — CFO .
  • “We ended the quarter with cash, cash equivalents and marketable securities of approximately $11,100,000.” — CFO .

Q&A Highlights

  • Cash post-transaction: Management indicated ~$24M net sale proceeds plus ~$11M existing cash for ~$35M, subject to taxes and working capital adjustments .
  • Cloud pipeline: Typically ~$10–$11M in opportunities, with probability-weighted stages and strong adds from existing customers and new leads via shows/SEO .
  • Europe progress: 3 UK data centers installed; ~10 partnerships with trained partner sales; added 4 sales and 2 tech hires; funnel building toward closes .
  • Rationale for CloudFirst sale: Unlock value of a “cash machine” business not recognized by public markets; avoid dilution; partner with PE-backed buyer for scale .
  • Post-sale operations: Public company to retain CFO, CAO, CEO and continue operating Nexus; 30–60 day window to form detailed plan for AI vertical software investments .

Estimates Context

  • Q2 2025 actuals vs S&P Global consensus: Revenue $5.15M vs $6.20M* (miss), EPS -$0.10 vs -$0.03* (miss); EBITDA consensus $0.10M*, but EBITDA not disclosed in Q2 materials . Values marked with * retrieved from S&P Global.
  • Implications: Consensus likely needs to adjust down for near-term EPS/EBITDA to reflect UK ramp costs and higher SG&A; recurring subscription growth helps support medium-term margin recovery as Europe begins billing and mix shift continues .

Key Takeaways for Investors

  • Near-term setup skews to corporate actions: Shareholder vote on 9/10/2025 for CloudFirst sale, followed by a large tender offer; either outcome (sale/no sale) aims to unlock/return value and reposition the Company .
  • Fundamental cadence: Subscription growth resilient (cloud/Nexus up YoY) while equipment/software declines weigh on top-line; expect profitability pressure until Europe ramps and SG&A normalizes .
  • Cash optionality: $11.1M liquidity pre-transaction and potential ~$24M net proceeds provide significant flexibility for capital return and targeted acquisitions in AI/cybersecurity/SaaS .
  • Watch UK milestones: Q4 2025 billing start and Jan 2026 breakeven target are key for operating leverage; added sales/tech capacity supports conversion .
  • Estimate risk: With Q2 misses vs S&P Global, Street models may need to temper near-term revenue/EPS and factor higher opex; medium-term trajectory improves as mix shifts further to recurring .
  • Strategic pivot: Rebranding and focus on AI/cybersecurity vertical SaaS could expand TAM and valuation narrative; execution pace and clarity on acquisitions will matter .
  • Trading lens: Outcomes around the CloudFirst vote and tender mechanics are the primary stock catalysts; absent sale, management still intends to optimize CloudFirst and pursue growth initiatives, which could support sentiment .