Data Storage (NASDAQ:DTST) executives used the company’s fiscal 2025 business update call to outline a dramatically reshaped balance sheet and strategy following the sale of its CloudFirst subsidiary, while emphasizing that the company’s future is focused on acquisitions and scaling opportunities in larger technology markets.
Chairman and CEO Charles M. Piluso said the company’s fiscal 2025 results were reported later than expected to allow additional time to complete the year-end audit. He attributed the delay to the “complexity of several significant transactions during the year,” including the CloudFirst divestiture, the “classification and settlement of many of our outstanding warrants,” and completion of a tender offer.
CloudFirst sale, tender offer, and balance sheet reset
First, DTST sold CloudFirst for a total transaction value of $40 million. Piluso said the deal generated approximately $31.6 million in net proceeds and a $20.1 million gain, and that the company believed the capital could be deployed into higher long-term potential opportunities.
Second, DTST returned capital to shareholders through a tender offer at $5.20 per share. Piluso said the company returned $29.3 million and reduced the outstanding share count by approximately 72%, calling the level of capital return “rare for a company of our size.” He framed the move as a core capital allocation principle: “Capital belongs to the shareholders.”
Third, Piluso said the company entered 2026 “debt-free with over $10 million in capital,” with a simplified operating structure following the divestiture.
Financial results reflect discontinued operations
Chief Financial Officer Christos H. Panagiotakos said the CloudFirst transaction closed on Sept. 11, 2025, and, as a result, ongoing financial reporting now reflects only continuing operations—specifically the Nexxis subsidiary.
Panagiotakos reported sales from continuing operations of $1.4 million for the year ended Dec. 31, 2025, up $164,000, or 13.4%, from $1.2 million in the prior year. He attributed the increase to continued growth in Nexxis’ voice and data solutions business, driven by new customer additions and increased spending from existing customers.
Selling, general, and administrative expenses rose $348,000, or 9.1%, to $4.2 million from $3.8 million. Panagiotakos said the increase was primarily driven by a $507,000 increase in non-cash stock-based compensation tied to accelerated vesting of equity awards triggered by the CloudFirst sale under “a fundamental transaction clause” in employee equity agreements. He also cited a $166,000 increase in salaries and directors’ fees due to merit-based salary adjustments and bonuses, partly offset by a $301,000 decrease in professional fees due to lower legal and consulting expenses.
Net income attributable to common shareholders was $19.2 million, compared with $523,000 in fiscal 2024. Both Piluso and Panagiotakos stressed that the sharp increase was largely driven by discontinued operations and non-recurring items. Piluso told investors the profitability “reflects the CloudFirst transaction and other non-recurring events” and “does not yet represent earnings power of DTST.”
On the balance sheet, Panagiotakos said cash equivalents and marketable securities were approximately $41 million at Dec. 31, 2025, compared with $12.3 million at Dec. 31, 2024.
Nexxis performance and cost outlook
Piluso said DTST’s remaining core operating business is Nexxis, describing it as “lean” and “subscription-based” with recurring revenue and improving margins. He reported that Nexxis generated $1.4 million in revenue in 2025 and said gross margins expanded to 44.4%.
He also said the company reduced customer concentration, noting that no single customer accounted for more than 10% of revenue.
Looking ahead to expenses, Panagiotakos said the company expects expenses to decline in 2026 compared with 2025, citing that “a significant number of its employees are no longer working for us and instead are working for the buyer of CloudFirst business,” along with anticipated lower legal and accounting costs.
During the Q&A, Panagiotakos estimated DTST’s 2026 burn rate at “probably about $2 million for the year,” noting that the figure reflects the costs of being a public company. Piluso added that the company expects to reduce certain areas, including legal fees, but characterized the burn-rate figure as an estimate.
Piluso also provided commentary on Nexxis’ operating posture. He said Data Storage owns 80% of Nexxis, which is run by John Cannella. Piluso said Nexxis has a small staff, is adding some personnel, and may require modest additional spending to improve inbound leads, including search engine optimization, while remaining disciplined on cash as DTST evaluates potential acquisitions.
Acquisition platform strategy and market observations
Piluso said DTST is positioning itself as a Nasdaq-listed acquisition platform with capital and flexibility to “identify, acquire, and scale high-quality businesses” in large and growing technology markets. He listed areas under evaluation including:
- AI-enabled vertical SaaS
- GPU infrastructure
- Cybersecurity and SOC-related services
- Scalable technology businesses with recurring revenue models
He said the company has identified and is actively pursuing strategic opportunities tied to an emerging GPU infrastructure segment in enterprise technology, pointing to tailwinds such as adoption of AI-driven workloads and demand for scalable digital infrastructure. Piluso said DTST expects to provide “meaningful updates in the near term as these opportunities evolve,” while emphasizing selectivity and a “disciplined, accretive” approach.
In response to a question from Maxim Group’s Matthew Galinko about valuations in AI and HPC markets, Piluso said valuations are “all over the place,” citing examples of pre-revenue companies seeking very high valuations. He also said that since the CloudFirst close in September, DTST has spoken with 21 companies and passed on them, spanning targets from “a SaaS AI offering to an MSP to VoIP companies.” Piluso characterized some managed services provider (MSP) valuations as trading around 1x revenue, with sellers seeking higher multiples depending on size and revenue mix.
Piluso said the company attended an NVIDIA conference that reinforced the scale of investment and innovation underway. He said DTST is not seeking to compete directly in “a capital-intensive area” such as large-scale GPU deployment, but instead is looking for ways to participate with discipline, including potentially structuring transactions creatively—such as separating MSP operations from software initiatives or pursuing joint ventures with options to buy once software is deployed.
In closing remarks, Piluso reiterated that DTST’s priorities include improving Nexxis performance and deploying capital into opportunities that enhance scale, expand margins, and strengthen the quality of earnings, with a focus on long-term shareholder value.
About Data Storage (NASDAQ:DTST)
Data Storage Corporation provides data management and cloud solutions in the United States and internationally. It offers a suite of multi-cloud IT solutions, including cyber security solutions, which comprise ezSecurity, a security solution for endpoint security, system assessments, and risk analysis, as well as IBM system protection, including Ransomware defense. The company also provides data protection and recovery solutions, such as ezVault for offsite data protection; ezRecovery for fast data recovery; ezAvailability for real-time data replication with minimal recovery objectives; and ezMirror for data mirroring at the storage level.
