Data Storage Corporation

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

Thank you, and good morning, everyone, and welcome to Data Storage Corporation's first quarter business update conference call. On the call with us this morning are Chuck Peluso, Chairman and CEO, and Chris Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing first quarter 2023 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 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 the expectations reflected in such such forward looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct. Important factors that cause actual results different materially from the company's expectations include, but are not limited to the company's ability to leverage the scalability and performance 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 the other cautionary statements included in the company's quarterly report on Form 10Q for the quarter end of March 31, 2023, annual reports on Form 10K, and current reports on Form 8K filed with the Securities and Exchange Commissions. Any forward-looking statement speaks only 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. Now, I turn the call over to Chuck Peluso. Please go ahead, Chuck.

Thank you, David, and good morning, everyone. We continue to make strong progress as it relates to the implementation of the business initiatives that I highlighted on our last call. These initiatives are highly targeted to accelerate our growth and should assist in achieving our goal of long-term, sustainable profitability. Historically, we've had an impressive 23% compounded annual growth rate since 2017. But we believe that through these initiatives, we can generate even stronger growth going forward. In fact, our near-term goal is to get to $50 million in high margin revenue run rate in the coming years through a combination of both strong organic growth and strategic acquisitions. For this end, we have a number of specific activities underway, including expanding our dedicated sales team, hosting revenue driven sales events, growing our channel partner program at Flagship Nexus, as well as Cloud First, increasing our international footprint through strategic partnerships, and finally, We are actively exploring ways to increase our gross profit margins in Flagship and Nexus on recurring services closer to 50%, much like cloud-first gross profit on subscription services. I'd like to note that we are still assimilating Flagship, including the recent realignment of management with Tom Kempster, Flagship's new president. All of our efforts are focused on the primary goal of efficiently deploying capital based on measurable returns, while increasing our penetration into this multi-billion dollar marketplace. In fact, we are increasingly being sought out for our products, services, and proven ability to execute. Validating this, our work in process on executed subscription revenue contracts are over $5.5 million in total contract value. And this further supported by the increasing visitation to our websites with over 19,000 visitors in the first quarter alone. Additionally, we received and we announced receiving a seven-figure order from a global 2,000 listed company on Forbes. This order is from an existing customer from whom we have established relationship and which we believe will further demonstrate our ability to meet any and all of the needs of our customers, specifically large enterprise customers. To provide additional clarity for our shareholders on performance of each subsidiary, we have decided to break out our revenue by business segment, and the first quarter is the second reporting period which we have done this. While we did report a decrease in revenue in the first quarter of 2023 when compared to 2022, I'd like to note that during the first quarter of 2022, we reported a $2.6 million equipment sale to an NFL team. Excluding this sale, our revenues increased 14% over the same period last year. As I mentioned in the past, we are focusing our efforts on recurring revenue. We're not turning away from equipment and software sales, and we continue to explore and take advantage of these opportunities since we have experience and we benefit from the cash injection. However, our long-term goal is steady profitability which can only be sustained with long-term subscription-based contracts, which provide high-margin recurring revenue streams. Concurrently, we're able to decrease our SG&A expenses by 13 percent, from $2.5 million in the first quarter of 2022 to $2.1 million in the first quarter of 2023, which is a result of reallocating resources and eliminating redundant expenses. As a result, and very importantly, we've achieved profitability for the first quarter with $35,000 in net income and an adjusted EBITDA of $334,000 on revenue of $6.9 million for the first quarter of 2023. With a solid, experienced leadership team, we are focused on subsidiaries to secure long-term recurring revenue contracts. While we believe Cloud First is hitting the mark, given its ability to sustain profitability on a standalone basis, we are extremely dedicated to having Flagship and Nexus achieve the same, thereby increasing overall profitability. We continue to drive the strategy by expanding our distribution channels, while also increasing our digital and direct marketing programs, which have been performing well, giving us social and digital lead generation programs. Cloud First alone has over 16,000 visitors to the website from the beginning of the year through April. Additionally, we continue to explore synergistic acquisitions that complement and enhance our current operations, including companies leading a technology trend or that add important technical staff and create economies of scale to improve our gross profit margins and net income. We will also drive growth by developing and managing collaborative solutions, as well as embark on joint venture, joint marketing initiatives with our established distribution partners, like IBM, our software vendors, IT resellers, managed service providers, application support providers, consultants, and others. Furthermore, we continue to believe there is a significant need for our solutions on a global scale, and we are pursuing growth opportunities internationally as these markets are increasing their use of multi-cloud solutions, which we are very well positioned to handle. To give you a better sense of the market, there is an estimated 160,000 systems in the market with multiple partitions. In total, there are about 1 million of the unique partitions. Once virtualized, we typically price these partitions at $36,000 per year. which equates to a global addressable market of roughly $36 billion in annual recurring revenue. It is also worth noting the average contract term is about 29 months, and we have maintained an impressive 94 percent renewal rate. So, hopefully, you can see with the effective rollout of these initiatives, we believe our profitability can accelerate and be maintained long term. Overall, we are positioning ourselves as a leader within the industry. There is very limited competition in the market today. And unlike others, we have a 20-year proven track record with an established first-class customer base. With approximately $11 million in cash and short-term investments and no debt, we can deploy capital effectively, execute on a strategic business initiatives, and substantially grow our business. We look forward to announcing additional accomplishments throughout the year. And with that, I'd like to turn the call over to Chris Panagiotakos, our CFO, to discuss our first quarter financials. Please go ahead, Chris.