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Data Storage Corp (DTST)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 beat on both revenue and EPS: revenue $6.42M vs $6.20M consensus and EPS $0.04 vs $0.03; coverage remains thin (1 estimate), but sequential momentum improved on mix shift to recurring cloud services. Values retrieved from S&P Global.*
  • FY 2024 highlights: $25.4M revenue (+2% YoY), Adjusted EBITDA $2.37M, net income $0.51M, cash and marketable securities $12.3M, and no long‑term debt; ARR run‑rate exited the year at ~$22M with >80% recurring revenue .
  • Strategic execution continued: launched CloudFirst Europe Ltd. with UK Tier III data centers, added a Tier III data center in Chicago, bringing the footprint to 10 global data centers by year‑end .
  • Management signaled limited incremental 2025 capex (2024 capex: ~$1.2M; UK capex: ~$0.575M) and a UK breakeven target by January 2026; they expect 2025 to be free‑cash‑flow neutral to positive even without equipment sales, supported by high‑margin cloud services .
  • Potential stock catalysts: sustained gross margin improvement from recurring mix, UK/Europe expansion traction, and clarity on capital allocation (focus on eliminating warrant overhang vs common buybacks) .

What Went Well and What Went Wrong

  • What Went Well

    • Beat on both Q4 revenue and EPS vs consensus; sequential improvement vs Q3. Values retrieved from S&P Global.*
    • Recurring revenue mix scaled: “ended the year with an estimated $22 million Annual Recurring Revenue run rate… with over 80% of our revenue recurring” .
    • Expanded infrastructure and reach: launched CloudFirst Europe, secured UK data center partners, and added Chicago—“total to ten global sites while enhancing redundancy and performance across North America” .
    • Margin progress and operating leverage: Adjusted EBITDA rose to $2.37M in 2024 (from $1.64M), with improved net income, demonstrating efficiency gains as the mix shifts away from one‑time equipment .
    • Management positioning: “one of the few single‑source global providers” on IBM Power with migration services across the U.S., Canada and the UK—a competitive differentiator .

  • What Went Wrong

    • Decline in one‑time hardware/managed services weighed on top‑line growth; FY cost of sales fell with lower equipment, but SG&A rose 13% on professional fees, stock‑based comp, salaries, travel tied to expansion .
    • Marketing lead gen “slowed slightly,” with shifts to ChatGPT‑style search; management is adjusting digital marketing to restore lead flow .
    • Lumpy revenue persists from large renewals and sporadic equipment/software—management cautioned on variability, though ARR and renewals cushion swings .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$4.91 $5.81 $6.42*
Gross Profit Margin %49.0% 43.2% 50.1%*
Net Income Attributable to Common ($USD Millions)-$0.244 $0.122 $0.288*
Diluted EPS ($)-$0.04 $0.02 $0.04*
  • Values retrieved from S&P Global.

Estimates vs Actual (Q4 2024)

MetricConsensusActualSurprise
Revenue ($USD Millions)$6.20$6.42*+$0.22 (+3.6%)*
EPS ($)$0.03$0.04*+$0.01*
# of Estimates1——
  • Values retrieved from S&P Global.

KPIs and Balance Sheet (Year‑end context)

KPIQ4/FY 2024
Annual Recurring Revenue (ARR) run‑rate ($USD Millions)≈$22.0
Recurring revenue as % of total>80%
Cash and Marketable Securities ($USD Millions)$12.3
Long‑term debtNone
Data centers (global)10
Cloud Infrastructure & DR Services FY revenue$12.3M (51% of total)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal revenue/EPS guidanceFY 2025NoneNone providedMaintained (no formal guidance)
CapEx2025n/aLimited incremental capex expected; 2024 capex totaled ~$1.2M; UK capex ~$0.575M Qualitative framework added
UK operations breakevenJan 2026n/aTarget breakeven Jan 2026 New detail
OpEx (SG&A)2025n/a“Wouldn’t expect that much…to increase; we’re pretty much in place” Qualitative framework
Capital allocationOngoingn/aPriority on addressing warrant overhang; preserve cash for $20M+ revenue acquisitions over common buybacks Clarified priorities

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
International expansion (UK/Europe)Q2: Opened London office; starting UK presence . Q3: Appointed UK MD; building UK data center partnerships .Launched CloudFirst Europe Ltd. with 3 UK Tier III partners; positioning as single‑source global IBM Power provider .Accelerating
Data center footprintQ2: Added Chicago data center . Q3: Reinforced Chicago’s strategic role .10 global data centers by YE 2024 .Capacity expanding
Recurring revenue/ARRQ2: Profitability and recurring focus . Q3: Renewal rates >90%; baseline services revenue over $20M .ARR run‑rate ≈$22M; >80% recurring .Improving mix
CapEx/FCF outlookLimited detail previously.Minimal 2025 capex; FCF neutral/positive expected without equipment sales .Improving cash profile
Lead generation/marketingQ3: Pipeline momentum; ~65k site visitors YTD .Noted lead gen dip as buyers use ChatGPT‑style search; adjusting digital marketing .Monitoring
Regulated‑vertical winsQ2: Six‑ and seven‑figure wins with prominent clients . Q3: Contracts in insurance, healthcare, education .Continued focus on compliance and certifications driving wins .Strengthening
Capital allocationQ3: Strong balance sheet; targeted M&A .Preference to remove warrant overhang; preserve cash for larger ($20M+ revenue) deals vs common buybacks .More explicit

Management Commentary

  • “We ended the year with an estimated $22 million Annual Recurring Revenue run rate, demonstrating the scalability and consistency of our subscription‑based model with over 80% of our revenue recurring.”
  • “With…three Tier III data centers in the UK…[and] a Tier III data center in Chicago, bringing our total to ten global sites…we are one of the few single source global providers [for IBM Power].”
  • “Selling, general and administrative expenses…were $11.0 million, an increase…due to…professional fees, stock based compensation, salaries and travel as a result of our international expansion efforts.”
  • “CapEx…approximately $575,000 in 2024 [UK]…$1,200,000 [total]. …We don’t expect much [capex increase in 2025]…UK…billing going on in the fourth quarter and then a January breakeven for January 2026.”
  • “I think we’re fine without equipment sales…CloudFirst alone…around a 30% EBITDA margin.”

Q&A Highlights

  • 2025 spending/capex: ~$1.2M capex in 2024 (UK ~$0.575M); limited incremental 2025 capex; UK breakeven targeted Jan 2026 .
  • Lead gen and demand: Slight dip in marketing leads as buyers use ChatGPT‑style search; company is adapting digital marketing and partner channels .
  • Regulated markets: Wins driven by compliance/certifications and migration capability; security posture key to conversion .
  • FCF profile: Expect free‑cash‑flow neutral/positive in 2025 without equipment sales, supported by 30% EBITDA margins in cloud services and >80% recurring mix .
  • Capital allocation: Management prefers addressing warrant overhang and preserving cash for larger ($20M+) acquisitions over common stock buybacks at this stage .

Estimates Context

  • Q4 2024 results vs S&P Global consensus: Revenue $6.42M vs $6.20M; EPS $0.04 vs $0.03; one covering estimate for each metric, indicating limited analyst coverage. Values retrieved from S&P Global.*
  • Implications: The beat, improving gross margins, and recurring mix may nudge margin and FCF expectations higher, though management did not issue formal guidance; ARR run‑rate (~$22M) and >80% recurring revenue frame 2025 stability .

Key Takeaways for Investors

  • Mix shift is working: recurring cloud services (>80% of revenue) and ARR (~$22M) provide visibility and margin leverage; Q4 beat and sequential margin expansion underscore momentum .
  • Operating leverage evident: FY Adjusted EBITDA up to $2.37M with modest revenue growth, suggesting incremental gross margin dollars are translating to EBITDA as mix improves .
  • 2025 cash dynamics favorable: limited incremental capex, UK breakeven target by Jan 2026, and FCF neutral/positive guidance (qualitative) without equipment sales .
  • Europe as a growth vector: UK partnerships and local Tier III capacity create a differentiated IBM Power migration/hosting footprint across U.S./Canada/UK .
  • Watch catalysts: new enterprise migrations, UK logo wins, ARR/renewal disclosures, gross margin trajectory, and any action on warrant overhang or larger M&A .
  • Risks: Demand/lead gen variability amid changing buyer behavior, lumpy non‑recurring revenue, and elevated SG&A from international build‑out .
  • Positioning: “One of the few single‑source global providers” for IBM Power migrations with multi‑cloud interconnectivity—supports premium win rates in regulated verticals .

Notes:

  • All document‑based figures and quotes are cited. Q4 2024 quarterly actuals and consensus values denoted with an asterisk (*) are retrieved from S&P Global.