Data Storage Corporation

Greetings and welcome to Data Storage Corporation 2022 Fiscal Year Business Update Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alexandra Schilt. Please begin.

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's 2022 Fiscal Year Business Update Conference Call. On the call with us this morning are Chuck Peluso, Chairman and Chief Executive Officer, and Chris Patagio-Tacos, Chief Financial Officer. The company issued a press release this morning containing 2022 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, I'd like to remind listeners that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended that are intended to be covered by the safe harbor created thereby. Forward-looking statements are subject to risks and uncertainties that could cause actual results, performance, or achievements to differ materially from any future results, performance, or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by, or that otherwise include the words believes, expects, anticipates, intends, projects, estimates, plans, and similar expressions or future or conditional verbs such as will, should, would, may, and could are generally forward-looking in nature and not historical facts. although not all forward-looking statements include the foregoing. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations include but are not limited to the company's ability to leverage the scalability and performance of flagship solutions, the company's ability to benefit from the IBM cloud migration underway, the company's ability to position itself for future profitability, and the company's ability to maintain its NASDAQ listing. These risks should not be construed as exhaustive and should be read together with other cautionary statements included in the company's annual report on Form 10-K for the year ended December 31, 2022, and quarterly reports on Form 10-Q and current reports on Form 8-K filed with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it was initially made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or otherwise. I'd now like to turn the call over to Chuck Peluso. Please go ahead, Chuck.

Thank you, Allie, and good morning, everyone. 2022 was a year of assimilation for Data Storage Corporation, especially as it relates to our flagship subsidiary. And while we are proud to report achieving a 60% increase in revenue to $23.9 million for 2022, we have also implemented meaningful business initiatives during the year that we believe will enable us to further accelerate growth and streamline the organization with the goals of long-term profitability. Additionally, this is the first reporting period that we have broken out our revenues by business segment, which we believe allows us to paint a better picture for each of our business units. While each of our subsidiaries address important aspects of information technology and provide solutions and services to a broad range of clients across various industries, our primary focus is targeting long-term contracts with subscription services that provide meaningful recurring revenue streams. allowing us to maintain long-term growth and profitability. The days of waiting for that one large equipment or software sale in order for a subsidiary to be profitable for a quarter is over. The objective is recurring revenue. However, we are not turning away from equipment and software sales. We are instead basing profitability each month on recurring revenue. Our revenue objective is to have 80% of our annual revenue recurring. While we are not 100% there at Flagship, Tom Kempster, the new president of Flagship since November 2022, is highly focused on the strategy and vision. An example of how the strategy is working is our Cloud First subsidiary, which we achieved profitability on a standalone basis with net income of $1.9 million and an EBITDA margin of 27% or $3 million with revenue of $11.5 million for 2022. Hal Schwartz, President of CloudFirst, has positioned the subsidiary as a leader in the market and taking advantage of the cloud migration on IBM Power Servers, which is currently underway. We have only begun to scratch the surface to this market, a $36 billion annual addressable market in the United States and Canada. Turning to flagships. When we acquired Flagship, we understood and still believe today that Flagship's brand and reputation is in very high regard. However, given the current economy, companies are being more cautious in terms of large equipment purchases and the timing of the purchases. While we continue to pursue these opportunities, we are focusing Flagship on subscription-based services, which typically provide a higher margin. The strategy is aligned with the overall market and economy as customers are working to outsource and migrate the cloud-type services and solutions where CapEx moves to OpEx and customers can pay as they grow. Flagship will continue to provide equipment to their client base. However, we will not base the business health on a one-time equipment sale. As a result, after reviewing proposals outstanding for 2023, for equipment sales, we felt it prudent to reduce goodwill by $2.3 million. Today, Flagship is positioned with IBM and is working closely with IBM on cybersecurity solutions and software. Moving forward, we will be making an investment with IBM to accelerate cybersecurity revenue. Additionally, to further assist in the success of Flagship, we are refreshing the Flagship website, hiring new business development personnel, expanding distribution channels through key marketing programs. We believe these steps will assist in reaching profitability for Flagship on a standalone basis, as well as aid in the overall profitability of data storage corporations. Furthermore, we intend to deploy capital effectively and have outlined several objectives that we expect to execute throughout 2023. First, we intend on hosting high margin revenue driven events during the year in various cities around the United States. Second, while we provide solutions to government agencies, we are building out a government focused business unit. Third, We intend to expand internationally. As our products and services are applicable worldwide, there are many large markets we can penetrate. Fourth, we are already underway with the consolidation of the technical teams of Cloud First and Flagship under our CTO, Chuck Polillo. One positive outcome expected should be an improvement in gross profit. Fifth, we will expand our channel partner program in the United States and Canada. Channel partners are a great way to grow quickly since these MSPs are the trusted advisors to their client base. And finally, as I have touched on before, we plan to expand the sales force with dedicated sales representatives and teams aligned with the business segments and departments. And we can focus both on growth and profitability. With the realignment of management, refocused efforts on business initiatives and a growing sales team, we believe the value of the activities we undertook in 2022 will become apparent in 2023. Importantly, we expect these steps will be reflected in our first quarter 2023 results, which is shaping up extremely well. Overall, we remain committed to growth, and with limited competition in several of our core services and solutions, we believe our sales teams and our proposal pipeline will aid in advancing our service delivery teams and assist in long-term profitability. With approximately $11.3 million of cash and short-term investments and no debt, we expect to deploy capital effectively and efficiently. including expanding our distribution channels, increasing marketing activities, and exploring accretive acquisitions. We believe we are well on our way towards becoming a multi-billion dollar leader in this growing market. With that, I'd like to turn it over to Chris, our CFO, to discuss the 2022 financials. Chris?