Executive Summary

Q3 2025 marked a structural reset following the CloudFirst divestiture: continuing operations (Nexxis) delivered $0.42M revenue (+28.2% YoY) and 47.6% gross margin, while total EPS was driven by a $17.47M gain on the sale, resulting in $2.20 diluted EPS .
Against S&P Global consensus, DTST posted a significant EPS beat on continuing operations ($0.02 vs -$0.14*) and a modest revenue beat ($0.417M vs $0.400M*), with only one estimate covering the quarter.*
Liquidity strengthened materially: cash and marketable securities were $45.76M at 9/30/25; management reiterated plans for a tender offer and share buyback, and outlined an M&A pipeline targeting recurring-revenue assets (VoIP/data, GPU/AI infrastructure, cybersecurity) .
Near-term stock reaction catalysts include final tender offer details (size/price), clarity on post-tender cash balance ($5–$15M target range), and progress toward an acquisition by end of March; CFO indicated Q3 SG&A is a reasonable run-rate going forward .

What Went Well and What Went Wrong

What Went Well

The CloudFirst sale was characterized as “transformative,” unlocking value and enabling a focused DSC 2.0 strategy; total net income was $16.78M, driven by the $17.47M gain on sale .
Continuing operations (Nexxis) showed healthy YoY growth: sales rose 28.2% to $417K on expansion in voice/data telecom solutions; gross margin improved to ~47.6% .
Balance sheet strength: cash and marketable securities totaled $45.76M at quarter-end; warrant repurchase simplified capital structure ahead of the tender process .

What Went Wrong

Operating loss in continuing ops widened YoY to -$1.10M, reflecting higher SG&A (+31.8% YoY) largely due to accelerated vesting from the divestiture and compensation increases .
Loss from discontinued operations in Q3 before the sale was -$0.82M, partially offset by the gain on sale; continuing operations remain sub-scale, necessitating inorganic expansion .
Limited estimate coverage (single-analyst), and lack of formal quantitative guidance leaves uncertainty on forward revenue/margins pending M&A execution and tender outcomes .

Financial Results

Continuing Operations Performance (Nexxis)

Metric	Q3 2024	Q3 2025	YoY Change
Revenue ($USD)	$325,299	$416,956	+28.2% (calc from )
Cost of Sales ($USD)	$180,832	$218,457	+20.8% (calc from )
Gross Profit ($USD)	$144,467	$198,499	+37.4% (calc from )
Gross Margin (%)	44.4% (calc from )	47.6% (calc from )	+320 bps (calc from )
SG&A ($USD)	$984,099	$1,296,974	+31.8% (calc from )
Operating Income (EBIT) ($USD)	-$839,632	-$1,098,475	-$258,843 (calc from )
Interest Income ($USD)	$160,770	$193,347	+$32,577 (calc from )
Continuing EPS (Basic) ($)	-$0.10	$0.02	+$0.12 (calc from )
Continuing EPS (Diluted) ($)	-$0.10	$0.02	+$0.12 (calc from )

Total Company EPS and Shares

Metric	Q3 2024	Q3 2025
EPS Attributable to Common – Basic ($)	$0.02	$2.30
EPS Attributable to Common – Diluted ($)	$0.02	$2.20
EPS from Discontinued Ops – Basic ($)	$0.11	$2.28
EPS from Discontinued Ops – Diluted ($)	$0.11	$2.19
Weighted Avg Shares – Basic	6,999,447	7,293,644
Weighted Avg Shares – Diluted	7,405,664	7,613,606

Liquidity and Capital

Metric	FY 2024 (12/31)	Q3 2025 (9/30)
Cash & Equivalents ($USD)	$1,070,097	$284,714
Marketable Securities ($USD)	$11,261,006	$45,471,979
Total Cash + Securities ($USD)	$12,331,103 (calc from )	$45,756,693 (calc from )
Warrant Liability ($USD)	—	$1,224,838

Note: Q2 and Q1 included CloudFirst within consolidated results (e.g., Q2 revenue $5.15M; Q1 revenue $8.08M), while Q3 presents continuing operations (Nexxis) separately post-sale; comparisons are structurally impacted .

Segment Breakdown (Post-CloudFirst Sale)

Segment	Q3 2025 Revenue ($USD)
Nexxis (Continuing Operations)	$416,956

KPIs (Continuing Ops)

KPI	Q3 2024	Q3 2025
Gross Margin (%)	44.4% (calc from )	47.6% (calc from )
Operating Loss ($USD)	-$839,632	-$1,098,475
SG&A ($USD)	$984,099	$1,296,974

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
SG&A Run-Rate	Near-term (Q4 2025+)	N/A	“Q3 number is a good number to use going forward” (~$1.3M)	Established run-rate commentary
Tender Offer / Post-Tender Cash	Post-completion	Q2 PR: Board authorized tender using 85% of cash on hand if transaction closed	CEO frames post-tender cash range ~$5–$15M; aim to retain ~$10–$11M if possible	Clarified expected range
M&A Timeline	By end of March	N/A	CEO pushing to close a recurring-revenue acquisition; moving upstream to $10–$20M deal sizes	New timing focus
Strategy Focus	Ongoing	Multi-cloud and CloudFirst growth	Post-sale focus on GPU IaaS, AI software, cybersecurity, and voice/data telecom (Nexxis)	Strategic pivot confirmed

No revenue, margin, tax rate, or EPS quantitative guidance ranges were issued for continuing operations; management emphasized disciplined capital allocation and M&A-driven scaling .

Earnings Call Themes & Trends

Topic	Q1 2025 (Older)	Q2 2025 (Older)	Q3 2025 (Current)	Trend
AI/Technology Initiatives	CloudFirst multi-cloud growth; UK expansion via Pulsant; IBM Power modernization	Proposed CloudFirst sale; evaluating AI/cyber/vertical SaaS focus post-transaction	DSC 2.0 focus: GPU IaaS, AI-driven apps, cybersecurity; forming advisory group	Accelerating pivot to AI/infra
Capital Returns	N/A	Board authorized tender offer framework if sale proceeds	Special committee finalizing tender price; buyback imminent	Moving to execution
Segment Performance (Nexxis)	N/A	Continued subscription growth; consolidated rev $5.1M	Nexxis rev +28% YoY to $417K; stable recurring base	Building recurring base
M&A Strategy	N/A	Post-sale proceeds earmarked for acquisitions	Targeting VoIP/data and GPU/AI/cyber; aiming to close by end of March	Pipeline formation
OpEx Discipline	N/A	Operating losses manageable; consolidated context	SG&A run-rate affirmed; no non-recurring items in Q3 SG&A	Cost visibility improved
Balance Sheet	Cash/securities $11.1M; no LT debt	Cash/securities $11.1M; no LT debt	Cash+securities $45.76M post-sale; warrant repurchase completed	Stronger liquidity

Management Commentary

“This quarter represents a defining period... we completed the sale of our CloudFirst subsidiary and repositioned the Company for its next phase of disciplined growth... unlock[ed] significant shareholder value... sharpen our focus... redeploy capital toward initiatives that offer higher returns” — Chuck Piluso, CEO .
“Sales from continuing operations... were $417,000... increase of 28.2%... driven by continued expansion of our voice and data telecommunication solutions” — Chris Panagiotakos, CFO .
“We are currently exploring strategic acquisitions... GPU-based computing, AI-enabled infrastructure, and cybersecurity... areas of active interest, not current commitments” — CEO .
“Q3 number is a good number to use going forward” (SG&A run-rate; no non-recurring charges in Q3) — CFO .

Q&A Highlights

Tender Offer Outcomes: CEO framed post-tender cash balance scenarios at ~$5–$15M, preferring ~$10–$15M to support acquisitions; an ATM of ~$10.8M is available for opportunistic funding .
SG&A Run-Rate: CFO confirmed no non-recurring Q3 SG&A items and suggested Q3 SG&A (~$1.3M) is a reasonable forward run-rate .
Acquisition Focus: Management emphasized tuck-ins to bolster Nexxis (VoIP/data access roll-ups) and moving upstream to $10–$20M deal sizes; GPU/AI opportunities remain actively monitored given sector volatility .
Process & Timing: CEO pushing to close an acquisition by end of March, acknowledging small targets may require audits before close .

Estimates Context

Metric (S&P Global Consensus)	Period	Consensus	Actual
Primary EPS (Continuing Ops) ($)	Q3 2025	-0.14*	0.02
Revenue ($USD)	Q3 2025	400,000*	416,956
Primary EPS – # of Estimates	Q3 2025	1*	—
Revenue – # of Estimates	Q3 2025	1*	—

Values retrieved from S&P Global.*
Context: The EPS beat reflects continuing operations; total EPS includes the gain on sale of CloudFirst, which is outside the scope of continuing operations tracked by consensus .

Key Takeaways for Investors

Structural break: Post-CloudFirst, DTST is a smaller, recurring-revenue telecom platform (Nexxis) with strong liquidity and a mandate to redeploy capital; frame models on continuing operations, not pre-sale consolidated figures .
Near-term catalysts: Tender offer terms/pricing and post-tender cash clarity ($5–$15M range) are key; expect incremental updates as the special committee finalizes the process .
Execution path: Management aims to close a recurring-revenue acquisition by end of March; focus areas include VoIP/data (roll-up economics) and select GPU/AI/cyber targets with durable cash flows .
Cost visibility: SG&A run-rate implied at ~$1.3M per quarter; watch operating leverage as Nexxis scales via organic growth and tuck-ins .
Estimate revisions: Expect upward adjustments to continuing EPS given the beat and improved gross margin; coverage depth is limited (single estimate), so consensus may be slow to recalibrate.*
Capital structure: Warrant repurchase completed; balance sheet flexibility remains high, enabling capital returns and M&A without debt .
Risk factors: Integration risk on roll-ups, valuation volatility in GPU/AI assets, and limited formal guidance may create uncertainty; monitor disclosure cadence and deal quality .

Data Storage Corp (DTST)·Q3 2025 Earnings Summary