Data Storage (NASDAQ:DTST) reported first-quarter financial results on Friday. The transcript from the company’s first-quarter earnings call has been provided below.
This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/.
The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=oINfocKb
Summary
Data Storage Corporation reported a strategic repositioning following the sale of its Cloud solution business in 2025, which provided capital to pursue larger market opportunities.
The company announced the formation of Sovereign AI Solutions, a subsidiary focused on AI continuity for regulated enterprises, addressing gaps in recovery, resilience, and compliance for AI environments.
Financial results showed a 10.9% year-over-year increase in sales for the Nexus subsidiary, with gross profit up 32.1% and expanded gross margins to 53.7%.
The company ended the quarter with $9.7 million in cash and marketable securities, maintaining a debt-free status and strong liquidity.
Management highlighted a focus on strategic initiatives for 2026, including developing the AI platform architecture, industry engagement, and potential customer opportunities.
The company emphasized its financial strength and flexibility to pursue strategic investments, partnerships, and potential acquisitions to enhance shareholder value.
Management expressed confidence in the timing and market potential for AI infrastructure, citing a multibillion-dollar annual market opportunity driven by regulatory demands.
Full Transcript
OPERATOR
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.
David Waldman (Investor Relations)
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 Peluso, Chairman and Chief Executive Officer and Chris Pangio, 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 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 Peluso. Please go ahead Chuck.
Chuck Peluso (Chairman and Chief Executive Officer)
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 a successful sale of our Cloud solution business in 2025 and today we are operating from position of financial strength, strategic flexibility and operational focus. As many of you know, the sale of Cloud solution 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 and 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 data sets. 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 study this market, we identify 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 Cloud first, 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 of 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 label for sovereign AI infrastructure environments. The platform we envision is designed to detect behavioral anomalies, execute validated recovery sequences and generated audit ready documentation that regulated industries may increasely 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 multibillion 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 while this market remains early stage and rapidly evolving. Evolving, we believe long term opportunity could be substantial. Based on our preliminary analysis, regulatory driven enterprise AI infrastructure infrastructure spending could ultimately represent a multibillion 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 matter 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 nexus business continues to provide an important operational and financial foundation for DTST Nexis remains a stable recurring revenue business delivering VoIP, dedicated Internet access, SD WAN and data transport services. During the first quarter of 2026, Nexis 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, NEXIS 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 and we look forward to updating everyone on our progress as we move throughout 2026. I’d like to turn it over to Chris Panagia Tacos for a review of the financial results.
Chris Panagia Tacos
Chris thank you Chuck Good morning everyone. As previously discussed, on September 11, 2025 we closed the sale of our Cloud first 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 Nexus subsidiary sales from continuing operations were $347,000 for the three months ended 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 Nexus 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 ended March 31, 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 ended March 31, 2026 increased $615,000, or 71.8%, to $1.5 million from $857,000 for the three months ended March 31, 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 31, 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 ended March 31, 2026 was $631,000 compared to net income of $24,000 for the three months ended March 31, 2025. We ended the quarter with cash, 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 and I will now turn the call back to Chuck.
Chuck Peluso (Chairman and Chief Executive Officer)
Thanks, Chris. Let’s open up the call for some questions. Thank …
This post was originally published here
