DTST

Greetings and welcome to the Data Storage Corporation First Quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Waldman, Investor Relations. Thank you. You may begin.

Thank you and good morning, everyone. Welcome to Data Storage Corporation's 2026 first quarter business update conference call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2026 first quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications, LLC at 212-671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC.

Except as required by law, the company assumes no obligation to update or revise forward-looking statements. I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck.

Thank you, David. Good morning, everyone. We appreciate everyone joining us today. The first quarter of 2026 marked another important milestone in the strategic transformation of Data Storage Corporation. Over the past year, we have repositioned the company following the successful sale of our cloud solution business in 2025. Today, we are operating from a position of financial strength, strategic flexibility, and operational focus. As many of you know, the sale of the CloudFirst business was transformational for Data Storage Corporation. That transaction not only validated the value we created over more than two decades, but also provided us with the capital foundation necessary to reposition the company towards what we believe are significantly larger long-term market opportunities. Following the transaction, we completed a substantial tender offer that reduced our outstanding shares count by approximately 72% while still maintaining debt-free balance sheet and substantial liquidity.

Importantly, the period following the sale was not a pause in activity. It was a period of evaluation, of analysis, of strategic development. We spent considerable time assessing emerging infrastructure trends, regulatory developments, competitive positioning in areas where we believe meaningful structural market gap existed. What became increasingly clear, experimentation into mission-critical software deployment environments. Across industries such as healthcare, financial service, insurance, organizations are beginning to deploy sovereign AI in AI factory environments. On-site equipment designed to run proprietary AI models on highly sensitive datasets. These are not public AI cloud environments. These are private enterprise-grade AI infrastructures that organizations increasingly rely upon for core operating workflows, security, decision-making, compliance functions, and customer-facing processes. As we studied this market, we identified what we believe is a critical infrastructure gap.

As these systems are deployed today, we believe there are no widely adopted purpose-built platforms designed specifically addressing recovery, resilience, behavior validation, and regulatory compliance to these AI factory environments. After two successful decades operating CloudFirst, we understand the client's requirements as it relates to meeting their expectations surrounding business continuity. Traditional data storage systems focus primarily on restoring hardware or infrastructure uptime, but AI introduces an entirely different challenge set. Enterprises will require a business continuity service and will increasingly need to validate those models are behaving correctly when a situation occurs. That output remains compliant, that inference consistency is maintained, and that recovery procedures themselves satisfy the client and regulatory standards. We believe this creates a significantly new category of infrastructure need.

To address this opportunity, we plan to establish Sovereign AI Solutions, a wholly owned subsidiary focused on developing what we describe as an AI continuity control plane for regulated enterprises. Our intention is to create a platform capable of serving as a resiliency, recovery, validation, and compliance layer for sovereign AI infrastructure environments. The platform we envision is designed to detect behavioral anomalies, execute validated recovery sequences, and generate audit-ready documentation that regulated industries may increasingly require as AI becomes embedded into critical business operations. Importantly, we believe our approach is differentiated because it focuses not only on infrastructure restoration, but also on preserving operational integrity compliance posture at the model and behavioral levels. We also believe the market timing is compelling.

Earlier this month, several leading AI developers announced multi-billion dollar initiatives designed to integrate AI deeply into the enterprise-wide workflows, further validating large-scale AI deployment across mission-critical environments is accelerating rapidly. This market remains early stage and rapidly evolving, we believe long-term opportunity could be substantial. Based on our preliminary analysis, regulatory-driven enterprise AI infrastructure spending could ultimately represent a multi-billion dollar annual market opportunity. At the same time, we are not currently aware of any other purposely built platform targeting compliance-driven AI recovery for regulated enterprises in the manner we are pursuing. Our focus throughout 2026 will be advancing the platform architecture, redefining our go-to-market strategy, continuing industry engagement discussions, and progressing towards potential initial customer opportunities. We expect to provide additional commercial and operational updates as these initiatives advance throughout the year.

At the same time, our Nexxis business continues to provide an important operational and financial foundation for DTST. Nexxis remains a stable recurring revenue business, delivering VoIP, dedicated internet access, SD-WAN, and data transport services. During the first quarter of 2026, Nexxis sales increased 10.9% year-over-year, while gross profit increased 32.1%, and gross margins expanded to 53.7% compared to 45% in the prior year-period. We believe these results demonstrate both the continued demand for our connectivity services and operational discipline within the business. Just as importantly, Nexxis provides us with a recurring revenue base and operating infrastructure that supports our broader strategic initiatives. Financially, we believe DTST is well-positioned relative to many companies pursuing emerging technology opportunities.

We ended the year with no long-term debt, substantial working capital, significant market securities, and a highly flexible balance sheet. That strength gives us the ability to remain patient, strategic, disciplined on how we allocate capital while SAIS remains our primary strategic initiative. We are also continuing to evaluate complementary opportunities, including partnerships, strategic investments, mergers and acquisitions, and other transactions that could strengthen our competitive position and enhance long-term shareholder value. Ultimately, our goal is to position DTST at the intersection of enterprise AI infrastructure, resiliency, compliance, and mission-critical continuity areas where we believe demand will continue to expand significantly over the coming years. We appreciate the continued support and confidence of our shareholders. We look forward to updating everyone on our progress as we move throughout 2026.

I'd like now to turn it over to Chris Panagiotakos for a review of the financial results. Chris?

Thank you, Chuck. Good morning, everyone. As previously discussed, on September 11, 2025, we closed the sale of our CloudFirst business for $40 million. As a result of the transaction and in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our Nexxis subsidiary. Sales from continuing operations were $347,000 for the 3 months ending March 31, 2026, an increase of $34,000 or 10.9% compared to $313,000 in the prior year. The increase was primarily attributable to continued growth in our Nexxis voice and data solutions business, driven by the addition of new customers and increased spending from existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base.

Gross profit for the three months ending March thirty-first, 2026 was $186,000, an increase of $45,000 or 32.1% compared to $141,000 in the prior period. Selling general and administrative expenses for the three months ending March thirty-first, 2026 increased $615,000 or 71.8% to $1.5 million from $857,000 for the three months ending March thirty-first, 2025. The increase was primarily driven by a $425,000 or 311% increase in non-cash stock-based compensation as a result of grants to certain employees during the three months ended March thirty-first, 2026.

Professional fees increased by $135,000 or 73.6% attributable to higher fees paid relating to legal and consulting services during the period. Net loss attributable to common shareholders for the three months ending March 31, 2026 was $631,000 compared to net income of $24,000 for the three months ending March 31, 2025. We ended the quarter with cash equivalents, and marketable securities of approximately $9.7 million at March 31, 2026. We used $29.5 million of the proceeds from the sales of marketable securities to repurchase common stock from our shareholders in connection with the tender offer, which closed on January 15, 2026. Thank you. I will now turn the call back to Chuck.

Thanks, Chris. Let's open up the call for some questions.

Thank you. At this time, we'll conduct a Q&A session. To ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. 1 moment, please, while we pull for questions. Your first question comes from Matthew Galinko with Maxim Group. Please state your question.

Hey, good morning. Thanks for taking my question. As you pursue the AI strategy, I'm curious how you'll pursue, I guess, developing technical solutions to support the go-to-market. Do you expect to bring developers in-house to the current structure? Just curious how you'll approach that.

Good morning, Matt. Thank you for the question. What we're doing right now is that, just to cover it across the board, essentially, is that we have a recruiter working on finding us someone to run the subsidiary. We are hopefully lining up CTOs that we can interview that may wanna start off as a consulting basis and handle the overall project. We're talking to three, four other companies, essentially, that wanna participate in everything from, you know, us subcontracting to them, to partnerships for them to, you know, do the installation. You know, we came across this because we put out a letter of intent to a company and found out a while ago about sovereign AI and looking into this and seeing where the holes are.

In doing that, you know, we started finding out, okay, who are the folks that are installing this sovereign AI? As we started looking at this very seriously, we said, "Well, okay, these are companies that we can use to sub out." From a U.S. basis, Eastern Europe, and from Indian basis, companies are looking to develop this software that today does not exist. You know, you can do what we did at CloudFirst for over 20 years, protecting someone's information and having a runbook to get the companies up and going because regulated companies using the cloud with proprietary data, they're pretty much building it themselves.

We're really on all fronts at this point, and so we hope to start building a statement of work, probably over the next 30 days, and that might involve probably 3 separate companies, each one having a different discipline. Right now, a number of companies, as I've gone around talking about this, and I'm kind of being somewhat quiet to a degree because, you know, you turn them into competitors. For the most part, we would say there's probably going to be 3 companies involved with putting this together in the 2 co-location centers is what our intention were to be.

Overall, you know, we have to start with someone that's gonna be project management, and that's why we have the recruiter going on, because there'll be a lot going on, but we've done it before with 10 data centers in 3 countries. It's very similar to that, but the software to flip it over when there's a disaster of some sort. Even though people can say, well, Tier 3 data centers, but everybody that's in Tier 3 data centers today still has to be geographically diverse if they're gonna be compliant and a whole list of other things. That's where we're headed. Stage 1 will be to make it look like it was almost CloudFirst, but on the GPU side and everything that goes along with GPU and storage.

The stage 2 of it will be building the software, you know, all along to be able to have it flip over and act behaviorally the same way. You know, behavioral point objective, behavioral time objective. This is very much similar to what we did with CloudFirst, but it's GPUs, and they are different. There'll be multiple companies involved. I'm sorry. You know, a short question, a very long answer, there'll be multiple companies that we're talking to today.

Sure. No, I appreciate all the color. It's helpful to kinda, you know, conceptualize what you're doing. Maybe just as a follow-up. You know, obviously, I think you've a better sense of timing than we do, but will we start to see expenses ramp up maybe in the second quarter or more in the third quarter around the initiative? Will we see that starting to hit the P&L, or would investments be capitalized, and we won't necessarily see it on the P&L? Just curious how the participation might look or as it's looking today and if that's the right timeline to think about.

Sure. Well, rounding our money, we have, let's say, $10 million in the bank. You know, we have some escrows going on still from the Innovis sale. We just settled one on the networking capital with them and have, you know, $700,000 that, you know, we have come in or coming in over the last week or so. We do have some cash. The board approved at a recent board meeting for us to go out and explore this and line it completely up with all the pieces that are needed. I think that it will hit the cash, but, you know, it won't be I don't wanna use the word significant.

I can't imagine us spending more than $250,000-$300,000 on being able to get it to the point of our statement of work part before we say go. When we say go, it's gonna, they're gonna be capital expenses. Those capital expenses will be depreciated over five years for the most part. The big hit on the cash, you know, I think most of it would be capital. The software development and all of that, we'll see how we can make arrangements, but that'll probably be the part that'll be just unknown at this particular point, frankly, on the software side. This, you know, there'll be capital expenditures going on.

I think we have enough money, you know, to implement this and still have a 2-year run if revenue wasn't generated. We're hoping to take, you know, hopefully taking agreements in the first quarter of 2027, maybe earlier, of which I'll call reservations versus subscription, but they'll all be recurring revenue.

Yep. That makes sense. Last question, then I'll jump back in the queue. With, you know, I guess referring to that, you know, not a subscription, I guess that kind of speaks towards, you know, figuring out what capacity you need, in, you know, relative to how many customers you have, and what their demands are. Can you talk a little bit how you're thinking about, you know, how far ahead of, you know, demand that you need to build out capacity and how access to GPUs and data center space might look as you know, progress over the next few quarters?

I'm going to say the next 1-2 quarters, we'll just be setting everything all up, hopefully having it in all in place, you know, by the end of the year. What's interesting about it is that we wouldn't be into this, let's keep buying more and more GPUs, spending $50 billion that you're seeing, you know, that's going on. That's not the play here. The play here is essentially to use just an example, take a mid-sized hospital. A mid-sized hospital, let's say they're going to spend $1 million and set up their environment. They're gonna run logistics for an operating room where their pharmaceutical and their building is critical. They might have subscribed to software. They didn't build it. You know, they install it, and it keeps learning and becoming more intelligent.

Now they what are they gonna spend to get to the other side to have the compliance in Sarbanes-Oxley and all these things that no one's talking about yet. Now are you gonna double that CapEx, or do you wanna go to a service bureau? We don't believe NVIDIA is gonna build a service bureau, by the way. You know, you know, CoreWeave and people like that, they could do it. They're not really focused on it. For the most part, they now need to have the ability to be able to recover. When we talk about this recovery piece, the return on investment seems significant for them. I would say that when we're looking at this, a mid-sized hospital is gonna need to be able to be compliant.

Their confidential information is sitting, you know, on their storage remotely, and we have run books. At some point, it needs to flip over and act the exact same way and recover. You know, it's I don't know if I'm answering that question completely, but that's kind of the model that you're looking at. That could be insurance companies as well, financial institutions, Martin. Does that answer your question, Matt? I'm not sure.

It helps. I guess to clarify, you know, I guess when you were hosting, you know, CloudFirst and disaster recovery there, you had an idea of how much capacity you needed, but, you know, taking the $1 million environment at a mid-sized hospital, what would be the, you know, I assume you'll have enough capacity, you know, are you spending 1 to 5, so your environment would support 5? You know, how do you, how do you balance the investment of, you know, customer needs to fail over in the GPU environment versus how much, you know, overcapacity you wanna build?

The first thing I think we know by now after all these years, providing business continuity is that a hospital is gonna run this application or multiple applications to improve efficiency and, you know, and all of that, and they're gonna depreciate this equipment over 3 to 5 years. That hospital is not gonna be in the race to add more and more GPUs and more and more GPUs. We don't see the growth there. When you don't we don't see them continue to build upon that at the rates that we're seeing, you know, folks spending $50 billion. We can match their equipment on our side. Let's just say, for example, that they wanna recover within 15 minutes. That's gonna be a higher level service, and that's not gonna run a ratio.

That's gonna be one-to-one for them, and that's gonna be, you know, what we would call high availability in a regular sense. There's another layer underneath there, like you're mentioning, Matthew, where you're gonna run a 5-to-1 ratio, an 8-to-1 ratio. The one things we learned during 9/11 with CloudFirst and, you know, and then other disasters and storms that all happen, is that things can happen geographically within a particular region. If you run too high of a ratio, you can't support it. It needs to be coming from different geographies on that. I would assume that a 5-to-1 ratio would be successful, as long as you could probably run a 10-to-1 ratio as long as the 10 are in all different parts of the U.S.

I would say if on standby type service where you have run books and all of that, I would say that probably 5 to 1 would be a good ratio.

Very helpful. Thank you.

Your next question comes from Ellen Litzaw with Fourth Capital. Please state your question.

Yes, fine. Thank you so much for taking my question. Can you elaborate on the market opportunity you see for the Sovereign AI Solutions and, you know, why you think now is the right time to enter the space?

Sure. Thanks, Ellen. The right time. It could be early on it, but if it takes us six months, when all of a sudden we believe that when everyone starts, everyone looks at AI as a general population of the world now, as they go into ChatGPT and they ask a question or Claude and say, "Design this and design that." The fifth layer of this AI is the business process, and that's the software being developed. These 150 executives that OpenAI is putting in place that was in a press release, you know, is going out to actually build this software. As this software gets deployed, they're gonna need to be compliant the same way all the CPUs have to be compliant in, you know, in industry, that they're using best practices. Today, that's not in existence.

It might be all happening in one data center. I think it's a matter of time before compliance and regulations start surrounding as more and more organizations, regulated organizations are deploying these types of software and services to make them more efficient, to learn better, reduce staff, whatever they're thinking. That's why these 150 people are being hired because, you know, companies are interested. The talent is lacking on it, you know. You know, we're there to be able to go up to sovereign AI to say, "Well, you put this in place, you know, how compliant are you?" No one, I don't believe anyone's asking that question, and we've been talking to a lot of people, you know.

Everyone's focused on, you know, learning, the training the models, installing equipment, testing it, but they're not there on compliance and all the regulations that went on over the previous years. That's why I believe it's a very solid business model.

That, that makes sense. That kind of leads into my next question. What do you think really differentiates the, you know, Sovereign AI Solutions from traditional disaster recovery, cybersecurity, or, you know, any enterprise infrastructure providers currently in the market?

I think it's the same thing. You know, essentially, you could say it's the same thing. None of the folks that are today in disaster recovery that we know, that our research came up with, are doing anything like this. Whether they're planning that, I'm not exactly sure. There's enough room in it. You know, some of the ratios I've seen is that, you know, this is going to be somewhere around 5%-10% of anyone that's putting sovereign AI in place.

Some numbers I've seen, and it is very tough when you start looking at market numbers, is that it's, you know, sovereign AI is right around a $50 billion total addressable marketplace, and 10% is what some of the numbers that I've seen for this type of thing, but they're rough calculations, and I wouldn't hold me to it. I know this is, you know, I have a solid feeling that this is coming. I do believe that the folks that are in this business that CloudFirst competed with will eventually move into this. I think we might have a head start on it, and I think that that's important, but there's enough room with, you know, five or six competitors.

Right now, if we get this up by the end of the year and we start talking to people in the fourth quarter, I think we'll have a little bit of a lead. Because of our background, we know about escalation lists. We know how to do that. We were doing that. We know how to have run books and all the things that went on with that. We do understand, you know, all of that, and I think it fits in really, really well with this. We saw the hole, you know, and we saw that come up because we see what's going on with sovereign AI and AI factories. I heard some numbers from Dell of proposals outstanding. They were just some large numbers. I'm pretty excited about it.

Oh, definitely very exciting. I guess in terms of the development timeline and then the potential commercialization path for sovereign AI, what does that look like over the next 12-24 months?

Everything's about execution. We all know that. Initially, we were going to try to do everything, you know, and then launch. Studying it some more, we felt maybe the thing to do is to do a 2-stage approach. Let's get this up and going without the behavioral side of it so that, you know, these regulated organizations, they can be protected, but it's gonna be different. It might not move over the exact same way right away behaviorally. You have the runbook and all of these things, the 1st stage will be to stand it up, start taking reservations, which I wanna call it reservations instead of subscription, and get it moving so they can start testing and coming over to us. From the very beginning, let's just say within 60 days, software starts to get developed.

By the time everything gets deployed on the hardware, on the hardware side, staffing's in place, you know, hopefully, it's not gonna take more than 9 months. There's some software out there that you can work with, but, you know, a lot has to be developed, so it just doesn't exist. You know, we dealt with this with our IBM systems with Precisely that did a roll-up of all the software companies we used for 15+ years. And we think there'll be very, very good value in owning the software as well. That's kind of the timeline, I think.

Got it. Okay. Well, that's great. Are you currently evaluating any, like, strategic partnerships, acquisitions, or maybe even, like, investments that could potentially accelerate this AI infrastructure strategy?

I originally wanted to do, and I still may, a joint venture. Folks that are already set up, that are installing Sovereign AI today, and to do a joint venture because they have the staff already in place and they have the knowledge of it. It's great for them, and that becomes an automatic partner because, you know, they're installing AI factories and Sovereign AI. We are talking to folks to be partners. One of the problems, you know, Ellen, is that when you're small, a lot of times you're not gonna be able to get larger organizations to go with you because, you know, that credibility is not there. They want to see a billion-dollar company, even though the billion-dollar company can be insolvent.

You know, it's just for the most part, they want to see a very large scope. Typically working through partners, and that's how we did it at CloudFirst as well. You know, when you get that very large deal, you know, you bring in a partner on it. We are looking at joint ventures. We're looking at partnerships. We're not really looking at investments at this time. We don't feel that that's necessary, frankly. I think we can do this with money in our bank and still leave a 2-year run rate, because, you know, the public company is expensive. It runs probably around, you know, I'd say $1.8 million-$2 million per year. I think we have enough.

I think we have enough to pull this off, but I'll know more over the next 90 days. We're trying to move pretty fast with it.

Oh, no, this is super helpful. Thank you so much for taking my questions. I really appreciate it, Chuck. If I have any other questions, I'll jump back in the queue.

That's great. Thank you, Ellen.

Thank you. Our next question comes from Matthew Galinko with Maxim Group. Please state your question.

Hey, appreciate you taking another one for me. Just wanted to check in on Nexxis and kind of the current revenue generator for the business. I think you had decent annual growth in the first quarter here. Any opportunities to, or, you know, how do you see that business trending over the rest of this year? Do you have an opportunity to, you know, accelerate that in any capacity? You know, do you see it continuing to add to, you know, kinda cut into the burn rate, I guess, as it grows? Thanks.

You know, Matt, their gross margins are great. We have put some money into Nexxis. They're not a large staff. John Canelo, who's the president of that, he owns 20% of that company. John and his staff do an excellent job. John continues to look for business development types to accelerate it, and I know that he's trying to recruit, you know, as we speak right now, he's trying to recruit business development folks to go. It's very, very difficult, the organic growth, but they're doing a great job with it. We looked at one or two acquisitions to roll it into that company, and we're still looking at that. I think if John is successful with getting the right people on to grow that.

I also believe, Matt, that, you know, because they're very limited with manpower, that getting a digital agency to start getting inbound leads going is one of the things that we've been talking about. CloudFirst had a great flow of leads. Harold Schwartz did a great job with the digital agency and everything that he did on that to get significant leads coming in. We need that to happen and then these business development folks to work on that because no one's answering the phone, no one's letting you in the building. John does a great job and his staff with association meetings and organizations and sponsorships, things like that.

He, you know, that next step, I think is, for Chris to free up some money for him to get, you know, the website going where he can get an inflow of the way that CloudFirst done. I think that's the next stage, but he is trying to recruit, you know, the folks in the business development area. He needs the help there. Because he's got great growth margins and, you know, does a good job, has a great the product is great.

Great. Thank you.

Thank you. There are no further questions at this time, so I'll hand it back to Chuck Piluso for closing remarks.

Okay. Thank you. Thank you for the questions. They were very deep questions, some of them. You know, Ellen, they were great. Hopefully, with shortly, we'll be back to everyone. Thank you for the questions. In closing, we believe the foundation we've established over the decades of execution and value creation has positioned DTST to pursue a unique opportunity at the intersection of enterprise AI, resiliency, and regulated infrastructure. Our strategy is supported by financial strength, operational stability, and what we believe is a differentiation of a long-term vision for AI continuity infrastructure. As the market continues to evolve, our focus remains on a disciplined execution, strategic flexibility, and creating substantial long-term value for our shareholders. We really do appreciate everyone's continued support and our shareholders and look forward to sharing additional updates as we progress. Thank you.

Thank you. With that, we conclude today's call. All parties may disconnect. Have a good day.

As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Alexandra Schilt, Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2025 fiscal year business update conference call. On the call with us this morning are Charles M. Piluso, Chairman and Chief Executive Officer, and Christos H. Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing its 2025 fiscal year financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before we begin, please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties described in the company's filings with the SEC. Except as required by law, the company assumes no obligation to update or revise forward-looking statements.

I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck.

Thank you, Alexandra Schilt. Good morning, everyone, and thank you for joining us. First, I would like to acknowledge the delay in reporting our fiscal year 2025 results, which was necessary to allow additional time to complete our year-end audit. This was primarily driven by the complexity of several significant transactions during the year, including the sale of our CloudFirst subsidiary, the classification and settlement of many of our outstanding warrants, and the completion of a tender offer. However, we are pleased to be here today to discuss our results in more detail. 2025 was the most consequential year for Data Storage Corporation's 25-year history. It was a year defined not just by strong financial results, by decisive action that fundamentally reshaped our company, strengthened our balance sheet, and positioned us for a new phase.

Over the past year, we made deliberate choice to unlock the value we had spent more than two decades building and redirect that value towards what we believe is a significantly larger opportunity ahead. We executed on that strategy in three critical ways. First, we monetized CloudFirst for a total transaction value of $40 million. That transaction generated approximately $31.6 million in net proceeds and a $20.1 million gain. We sold a strong asset at full value because we believed that capital could be deployed into opportunities with greater long-term potential. At closing, we had an estimated $41 million in the bank, based on our cash balance of $10 million plus the sale of CloudFirst. Second, we returned $29.3 million of that capital directly to shareholders through a tender offer at $5.20 per share, reducing our outstanding share count by approximately 72%.

That level of capital return is rare for a company of our size and reflects a core principle of ours. Capital belongs to the shareholders, and when we generate it, we allocate it responsibly, whether that means returning it or investing it for growth. Third, we reset the company. We entered 2026 debt-free with over $10 million in capital, a clean balance sheet, and at this point, a simplified operating structure. From a financial standpoint, these actions resulted in record performance. We reported a net income of $19.2 million for the year, compared to $500,000 for 2024. At the same time, I want to be very clear with investors. This level of profitability reflects the CloudFirst transaction and other non-recurring events. It does not yet represent earnings power of DTST, and we are being intentional and transparent.

What it does demonstrate is our ability to create value and recognize when to realize that value, and to act with discipline in how we allocate capital. Today, our core operating business is Nexxis, and it's performing. In 2025, Nexxis generated $1.4 million in revenue, representing a 13.4% year-over-year growth. Gross margins expanded to 44.4%, and importantly, we improved the quality of the business by reducing customer concentration, with no single customer accounting for more than 10% of the revenue. Nexxis is lean, subscription-based, recurring revenue business with improving margins and real operating leverage. That brings us to the most important part of our story. What comes next? We have deliberately positioned DTST as a Nasdaq-listed acquisition platform with capital, flexibility, and a clear mandate to identify, acquire, and scale high-quality businesses in large and growing technology markets.

We are actively evaluating opportunities in areas where we believe we have both a strategic alignment and the ability to add value, including AI-enabled vertical SaaS, GPU infrastructure, cybersecurity, and SOC-related services, as well as scalable technology businesses with recurring revenue models. These are not abstract targets. These are markets with significant tailwinds, where disciplined capital deployment can drive meaningful long-term returns. In fact, we have already identified and are actively pursuing a number of strategic opportunities with an emerging GPU infrastructure segment in enterprise technology. These areas are being shaped by strong tailwinds, including the rapid adoption of AI-driven workloads, ongoing data architecture, monetization, and increasing demand for scalability, resilient digital infrastructure.

Our focus remains on large, evolving markets where demand visibility is high, and we believe we can deploy capital in a disciplined, accretive manner, with an emphasis on opportunities that offer compelling, risk-adjusted returns, and clear avenues for long-term value creation. We are actively advancing these initiatives, positioning ourselves to stay agile and selective as they're developed. We expect to provide meaningful updates in the near term as these opportunities evolve. Importantly, we are only pursuing opportunities where we understand the consumer behavior and business deeply, and where we see a clear and credible path to value creation. At the same time, we are focused internally on improving efficiency. As we move through 2026, we expect corporate overhead to decline meaningfully as CloudFirst divestiture is completed. Our objective is to ensure that the earning power of this company is driven by operations, not one-time events.

When you step back and you look at DTST today, what you see is a company that has undergone a complete transformation. We have moved from a traditional cloud-based managed service model to a streamlined, well-capitalized platform with flexibility to pursue higher growth, higher margin opportunities. We have demonstrated that we can build value, that we are willing to realize it when the timing is right. Now we are focused on the next phase, building a company defined by sustainable growth, disciplined execution, and long-term shareholder returns. 2025 was about realizing value. 2026 and beyond will be about seeking opportunities, bringing together synergistic companies, and creating shareholder value. Now I'd like to turn the call over to Christos H. Panagiotakos for a review of our financial results. Christos?

Thank you, Chuck. Good morning, everyone. As discussed on our last call, on September 11th, 2025, we closed the sale of our CloudFirst business for $40 million. As a result of the transaction, and in accordance with auditing and reporting standards, our ongoing financial reporting now reflects only our continuing operations, specifically our Nexxis subsidiary. Sales from continuing operations were $1.4 million for the year ended December 31st, 2025, an increase of $164,000, or 13.4%, compared to $1.2 million in the prior year. The increase was primarily attributable to continued growth in our Nexxis voice and data solutions business, driven by the addition of new customers and increased spending for existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base.

Selling, General, and Administrative expenses for the year ended December 31st, 2025, increased $348,000, or 9.1%, to $4.2 million from $3.8 million for the year ended December 31st, 2024. The increase was primarily driven by a $507,000, or 101.6% increase in non-cash stock-based compensation, primarily related to the accelerated vesting of equity awards in connection with the sale of the CloudFirst business, which triggered a fundamental transaction clause in equity award agreements with employees. Salaries and directors' fees increased $166,000, or 9.8%, attributable to annual merit-based salary adjustments and bonuses. These increases were significantly offset by a $301,000, or 22.8% decrease in professional fees, primarily related to lower legal and consulting expenses in the current year.

We expect expenses to decrease for the year ended December 31st, 2026, as compared to the year ended December 31st, 2025, since a significant number of its employees are no longer working for us and instead are working for the buyer of CloudFirst business, and we anticipate having lower legal and accounting costs. Net income attributable to common shareholders for the year ended December 31st, 2025, was $19.2 million, compared to net income of $523,000 for the year ended December 31st, 2024. The significant increase in net income for the 2025 fiscal year was primarily driven by the gain recognized on discontinued operations. We ended the quarter with cash equivalents, and marketable securities of approximately $41 million at December 31st, 2025, compared to $12.3 million at December 31st, 2024. Thank you. I will now turn the call back to Chuck.

Thanks, Chris. Before we open the call to questions, I just want to reinforce what we believe we're entering into an exciting new phase. We attended the NVIDIA conference a few weeks ago, which reinforced the magnitude of the opportunity emerging across both technology and business. The pace of innovation and the scale of investment underway are substantial, signaling a transformation shift across industries. At the same time, it sharpened our approach. Rather than competing directly in a capital-intensive area, such as the billions being deployed into GPUs, new core infrastructure, we are focused on a disciplined participation. We have identified several key areas to focus to pursue, and we are advancing them deliberately, allocating capital thoughtfully, and concentrating on opportunities we see clear differentiation and the potential to drive meaningful long-term value. Now I'd like to open it up to questions. Operator?

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Matthew Galinko with Maxim Group. Please proceed with your question.

Hey, good morning. Thanks for taking my questions and congratulations on getting to this point in the transition. Maybe, can you give us some sense of what valuations look like? Is it what you expected when you started this process, particularly as you look towards some of the AI and HPC opportunities? Is it within reason or is it overheated at all?

Thanks, Matt, and it's good hearing your voice. What's going on is, after attending that conference, Matt, is that this is like nuclear energy. Some people are frightened, but most people are very, very excited. What's happening on the equipment side of things, you can put your hands on and it's very, very tangible. On the software side, everyone uses the term, they're training. They're training their platforms, their software and all. When we see the valuations, really, you hear things like, someone that's not even at a beta side of the software, people are hoping to get $700 million, and they're pre-revenue. For the most part, as I walked through the conference, I would say that NVIDIA has paid for everyone at that conference. It's huge. Out of San Jose, it was just amazing on it.

After spending 25 years in disaster recovery and business continuity, I went there with Matt, one of our Board Members, and we think we have an idea on a potential opportunity to be able to carve something out that's something that we know pretty well. We're still testing the waters. We still have a lot of research to do on it over a period of time. There are parts that you can play in that you're not going to get crushed or playing with someone that's raising or has spent $50 billion on GPUs. There are some opportunities given that based on our past experience that we see. The valuations are all over the place.

Most of the people that we spoke to, and by the way, Matt, since September, when we closed, we've spoken to 21 companies that we've passed on, that are everything from a SaaS AI offering to an MSP to VoIP companies. We're both basically seeing on the MSP side, you're looking, really, it's non-recurring, usually for the most part, unless it's software renewals. They're trading at 1x, but they're trying to get 2.5x revenue. It's according to the size that they really are. On some of the AI stuff, I just have to say that 95% of everyone we've spoken to, either at that conference and all, they're waiting to go buy their 120-foot yacht. It's not there yet, but the excitement of what's going on is incredible.

I think we potentially have some ideas on where we can play that separates us a little bit. In answer to your question, Matt, it's just all over the place. They're hoping to, like I say, get a $700 million value. Not that I'm a bar-goer, but sitting in a hotel bar, locked in with around 15-20 people that have passed through that a lot of people knew. One guy was working on the software on his laptop sitting next to me, and they're going literally for a $700 million valuation. I think it's all over the place. Everybody's trying to create water. It's a long answer, but it's that incredible, Matt. It's that incredible what's going on.

No, I appreciate the color. Maybe does having cash in the bank ready to deploy get the counterparties a little more interested in the conversation, or is that helping to move things along in some of these conversations?

Two of the things that we're looking at, well, three things which we always laid out. Oh, is there a reverse merger out there that gives stockholder value, great value and all? We're not rushing to that, but people are approaching us, and we're saying, "Well, gee, why can they do that and we can't? Why can they build something that has $100 million market cap and more, and why can't we?" We're really not so focused on that now. We'll look at opportunities because they're approaching us. There's also, I'm going to call it the medium tech, the stuff that's not on fire, where you could get burned. There are some really good MSPs out there, and some of them have developed some AI software.

We've been talking to them, some of these companies, about, well, how about we separate it and what's the meat and potatoes at your MSP? We look at doing something there, and then anything on the software side that for the term that everybody is still training, still working on, we'll create something as a joint venture or something where we have the opportunity to buy it if you actually deploy it. You need to really get creative because most of the folks that are in this MSP space, as well as VoIP companies as well, they've caught on, and they're trying to develop the software so they can roll it out to their customer base that they have. I think that's pretty good. I don't think we have to give any value yet to that software.

It might be something that's good because organic growth is very tough and there might be some good cross-selling that goes on. That's some of the stuff that we're looking at. Let's call it M&A, while we're still looking at this other thing that we feel that might be a good opportunity in the AI infrastructure GPU space.

Got it. Thank you. Maybe just last question for the existing business, is it possible to give us a sense of what the quarterly run rate or burn would look like operating without a transaction currently, and generally what your expectations for Nexxis are over the next year as operating independently?

Sure. I'll handle the Nexxis. I'll turn the burn over to Chris. Go on, Chris. You have an idea of what our run rate was, typically a range of where you think it might be.

I think the burn rate for 2026 will be probably about $2 million for the year, being a public company.

Yeah. We think we can reduce some of that, Matt, in certain areas because the legal fees were pretty high. We're still incurring some of them, as we go through it. We'll give it a range. That's an estimate. Don't hold us to it, but that's kind of what we're expecting on that. On the Nexxis side of things, they're growing. We own 80% of Nexxis. John Cannella runs that, does a great job. He has a small staff. He's adding some folks to it. We have to allocate a little bit more money, not much, but to improve his inbound leads. He does a great job with agents and with shows, associations and all of that.

I think we have to spend a little bit of money, not much, to improve the SEO side of things. He's profitable. He turned a profit. We never really allocated a lot of money, in a sense, to growth. It's been around for a while. We put money in as he needed it. We haven't said, "Here's $100,000. Get a digital marketing agency, get the lead flow going." We're trying to hold on to the cash we have, be very disciplined with it for the first acquisition. Along with, we have 2.1 million shares outstanding, give or take. It's a little bit more than that. We want to be careful with that if we're going to say, "Hey, we're going to go raise money," which we would, that it's going to be an increase in value.

Got it. Very good. Well, hey, appreciate the color and look forward to seeing what you do.

Thanks very much, Matt. Thanks for spending the time. Hope to see you soon.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, it's star one on your telephone keypad. We'll pause just a moment to allow for any other questions. Mr. Piluso, I see no other questions at this time. We'll turn the floor back to you for final comments.

Thank you. Thanks for the questions, Matt. As we enter this next phase from a position of real strength with capital on the balance sheet and a clean, simplified structure and a clear strategic mandate, that combination gives us the ability to be selective, to be disciplined, and to focus only on opportunities that we believe can create meaningful long-term value for our shareholders. At the same time, we remain grounded in execution. Our priorities are clear. Continue improving performance of Nexxis, deploy capital thoughtfully into areas that enhance our scale, expand our margins, and strengthen the overall quality of our earnings. We are building with intention, and we are building for durability, and we do appreciate the trust and support of our shareholders. We look forward to updating you on our progress as we move through 2026 and execute on the opportunities ahead. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.