Data Storage Corporation

Greetings and welcome to the Data Storage Corporation 2023 Fiscal Second Quarter Business Update Conference 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 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 go ahead.

Thank you. Good morning, everyone, and welcome to Data Storage Corporation's second quarter business update conference call. On the call with us this morning are Chuck Peluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer. Sorry, bear with us for one second. Okay. So here we go. The company issued a press release this morning containing its second quarter 2023 financial results, which is also posted on the company's website. If you have any questions after the call, 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 Security 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 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 different 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 the other cautionary statements included in the company's quarterly report on Form 10Q for the quarter ended June 30, 2023, annual reports on Form 10K, and current reports on Form 8K filed with the Securities Exchange Commission. Any forward-looking statements speak only to 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.

Chuck Peluso Thank you, David, and good morning, everyone. We are beginning to witness the benefits of the business initiatives I discussed on prior calls, which are focused on accelerating our growth with the goal of achieving long-term sustainable profitability. I am proud to report that we have achieved solid financial results for the second quarter, with revenue increasing 22 percent to $5.9 million. Importantly, we achieved profitability for the second consecutive quarter, which we believe demonstrates our ability to execute our business growth strategy and the strength of our business model. We also improved gross profit by 11 percent for the six-month period. Furthermore, we are continuing to assimilate our flagship business unit, and we are actively exploring ways to increase our gross profit margin on subscription revenue within Flagship and move closer to the 50% margin that we attain at Cloud First. Additionally, our equipment and software group generated $2.4 million in the second quarter, compared to $1.9 million for the second quarter of 2022. Notably, Cloud First as a standalone achieved $3.2 million in revenue for the second quarter, with net income of over $550,000 and $800,000 in EBITDA, which is a 25 percent margin. We plan to continue to drive revenues by executing on our business initiatives, including expanding distribution channels, increasing our digital and direct marketing programs, continuing our lead generation program, hosting additional revenue-driven sales events, and exploring strategic M&A opportunities to assist with the overall growth of our company. Importantly, there is significant need for innovative solutions on a global basis, as expanding internationally and increasing our geographic footprint and addressable market are priorities for us. Another validation of our growing presence in the marketplace is the fact that we had over 45,000 visitors to our websites year-to-date. We also have over $9 million in total contract value and proposals to potential clients. In addition, we have what we refer to as a nurture group of companies with over 25,000 organizations that receive our information that do not opt out and receive marketing and technical information they have continued to send over the years. and interface with them on an ongoing basis. Companies on this list have expressed interest in implementing our solutions and could provide meaningful revenue should we secure new contracts. In particular, and perhaps more important to note, are the secured contracts announced recently, which we believe demonstrate our contract momentum during the second quarter and into the third quarter of 2023. Many of these are high-margin subscription-based contracts. Let me touch on these contracts quickly, and I'd like to highlight that we continue to maintain a 94 percent renewal rate with an average term of 29 months, validating that we continually meet or exceed our clients' needs. First, we secured a multi-million dollar contract with a leading business process solution provider that has customers around the world. We are implementing cloud-based infrastructure to support their large data sets while providing 24 by 7 dedicated support and data recovery services. Our solutions allow for the client to run at full performance during planned maintenance or unplanned outages. This contract provides an avenue to penetrate international markets, and we intend to pursue the opportunities. Next, we secured a large subscription-based contract with a promotional products company. This contract specifically came through our flagship subsidiary, and we believe illustrates we are executing on our goal of increasing flagship's recurring subscription-based revenue contracts. This customer sought us out following an unpredictable natural disaster. Unfortunately, following this event, the customer quickly realized that they were unable to recover and resume operations within the required timeframes, making it a costly and an extended outage. As a result, We were contracted to provide cloud-based disaster recovery and cloud-based infrastructure to allow them to move from legacy hardware to running all of their critical applications on our fully managed, highly secure enterprise cloud with dedicated support teams, ensuring seamless and rapid recovery. Furthermore, we secured a multi-million dollar project with one of the nation's leading sports and entertainment companies. For this project, we built a custom solution and are providing cloud storage infrastructure to improve response times to files, recovery of files, and increasing their storage capacity. We believe this contract demonstrates our ability to address each client's needs and build out specific solutions to assist in reaching their goals. In addition, the sports and entertainment industry has been increasing the adoption of data storage and security solutions. As a result, we are gaining traction in this industry. And most recently, we were contracted with one of the largest food distributors in the United States to provide managed disaster recovery solutions. This is another subscription-based contract and increased our reach within the vertical while enhancing our recognition within the food industry. We have the opportunity to expand these contracts and provide additional services, which we will explore and execute accordingly. We are securing large, high-margin contracts and have been focused on subscription-based services, providing recurring revenue as we add these important companies to the list of 450 companies we currently serve. I'm proud to report that Cloud First and Flagship achieve profitability on a standalone basis for both the first and second quarters. We are targeting large market opportunities and continue to secure contracts and believe we are better positioned to penetrate the market as well as expand our geographic footprint, which should assist in accelerating our growth. We also continue to explore strategic acquisitions that complement and improve our current operations, including companies leading a technology trend or may increase our distribution channels or that add important technical staff and create economies of scale. Through all these initiatives I have highlighted, I am confident we can continue to grow revenue, improve our gross profit margins and net income. To wrap up, as mentioned at the start of the call, we are effectively executing on our business initiatives and achieved profitability for the second quarter. At the same time, we maintain a solid balance sheet with over $10.6 million in cash and short-term investments and intend to deploy capital efficiently to assist in the growth of the company while continuing to secure meaningful contracts. We believe our growth strategy will support long-term profitability and create long-term value for our shareholders. With that, I'd like to turn the call over to Chris Panagiotakis, our CFO, to discuss the second quarter financials. Please go ahead, Chris.