Data Storage Corporation (NASDAQ DTST) Q3 2022 Earnings call Transcript
Data Storage Corporation (NASDAQ):DTST) Q3 2022 Earnings Call Transcript November 15, 2022
Data Storage Corporation exceeds earnings expectations Expectations were $-0.06.
Operator: Good morning, ladies, and gentleman, and welcome to Data Storage Corporation’s Third Quarter 2022 Conference call. It is my pleasure now to hand the floor over to your host. Ma’am! The floor is yours.
Photo by Chris Barbalis at Unsplash
Representative of an unidentified company: We are grateful. Good morning everyone, and welcome to Data Storage Corporation’s 2022 third quarter ending September 30, 2022 business updates conference call. Chuck Piluso, Chairman & Chief Executive Officer, and Chris Panagiotakos are joining us today on the conference call. This morning, the company released a press release that included third quarter 2022 financials. It is also available on the Company’s Website. Crescendo Communications can be reached at 212-671-1020 if you have any questions or want additional information about the Company. Before we get started, I would like to remind listeners of forward-looking statements made during this conference call under the Private Securities Litigation Reform Act of 1996 as amended. These statements are intended and covered by the Safe Harbor.
Forward-looking statements can be subject to uncertainties and risks that could cause actual results or performance to differ materially. Statements that begin with, follow by or otherwise contain the words believes and anticipates, intends projects, estimates and plans or other expressions are forward-looking statements. These statements are not historical facts and are not historical facts. The Company believes that the forward-looking statements reflect reasonable expectations, but cannot guarantee that they will be correct.
There are many important factors that could lead to actual results being different from what the Company expected. These include the Company’s ability leverage Flagship Solutions’ scalability, performance, and ability to profit from the IBM Cloud Migration underway. The Company’s position for future profitability and its ability to keep its NASDAQ listing. These risks should not be taken as an exhaustive list and should be considered in conjunction with other cautionary remarks, including the Company’s quarterly report on form 10-Q for the quarter ending September 30, 2022 and its annual report on form 10-K and current reports of Form 8-K filed to the Securities and Exchange Commission. All forward-looking statements reflect only the date at which they were made. Unless required by law, however, the Company does not assume any obligation to modify or revise any forward looking statements, regardless of whether new information, future developments, or changed circumstances.
I now want to hand the call to Chuck Piluso. Chuck, you can go ahead.
Chuck Piluso Good morning everyone, Ally! The third quarter ended September 30, 2022 saw strong revenue growth, with revenue of $4.4million. This is a 14% increase over the previous year. Our revenue for the nine-month period ending September 30, 2022 increased by 80%, to $17.9million, compared to the same period last. Our years of experience, offering multi-cloud technology solutions, well-allocated investments, and highly qualified employees have made us a strong leader in the industry. We offer solutions for multi-billion dollars markets.
Fortune Business Insights estimates that the North American cloud managed services industry was worth $16.3 billion in 2019. The number has grown at a 13.8% compounded annually growth rate, to $24B by 2022. Based on Grand View Research Disaster Recovery Solutions market size report, the U.S. disaster recovery market is expected to reach $3.6 billion by 2022. That’s 35% of 10.3 global markets. Our Nexus Solutions are compatible with our dedicated Internet access, which is a critical component for accessing cloud services. GlobeNewswire Market Analysis & Insights predicts that the VoIP market will grow steadily to 90 billion by 2022. This is in addition to the 3.1% compound annual growth rate with 17 billion Americans.
Our goal is to aggressively reach these markets while executing our strategy of securing high-margin recurring, subscription-based and managed services contracts. As more companies migrate to the cloud IBM Power infrastructure, we believe this will help propel our solutions into the forefront of the market, allowing us to capitalize on these multibillion dollar markets. We see this migration as the future for our industry and are well-positioned to seize these opportunities. Given the migration to cloud within IBM’s market, which I’ve been talking about over the past conference calls, only 15% of IBM Power service users use the cloud today, despite 1 million virtual IBM Power Services worldwide.
We have the platform and talent to seize the opportunities that are available, despite the fact that there is very little competition on the market. The company has invested millions in fixed Tier 3 data center in the U.S. as well as Canada. The equipment and technical teams design solutions. We are not an IBM reseller. Our employees manage the services and we own the equipment, cages, and racks in our data centers. We currently service more than 350 companies. This expertise is only available to a handful of companies. Yet, I believe that we do a better job. It is less difficult, more efficient, and costs are competitive. Our company is a pioneer in this field. It is important that businesses are under increasing pressure to increase the efficiency and effectiveness of information and storage systems. This will allow them to accelerate the migration from self-managed technical solutions and solutions to fully managed cloud technologies, which will reduce costs and help them compete.
Capital preservation encourages you to shift from a capital-intensive on-premise technology to an OpEx to CapEx model. These trends present a market opportunity for cloud technology providers and demand for fully managed cloud services and cybersecurity services across major operating system platforms. This addressable market is estimated to be approximately $48 billion annually in U.S. and Canadian recurring revenue. Our CloudFirst in Nexus Division was ISO certified to demonstrate our commitment towards security. This certification confirms that our security protocols and security measures have been properly implemented and maintained in all areas.
This certification will help us accelerate customer adoption because many organizations are looking for it before implementing certain solutions. We will continue to adhere to the highest standards of security for our company and the trusted support from our. We believe that these activities will help us increase our profits and margins as well as speed up our growth. This includes realigning management, operations, and finance. We recently centralized service delivery and infrastructure. Sales engineering teams can now better use client proposal tools and software across multiple sales teams. A new major accounts team will also be established to assist large enterprise clients as well as continue fulfilling ongoing software, IT and equipment requirements.
These changes will greatly improve our infrastructure solutions as well as the recurring revenue-to-one time sales ratio. This will result in increased gross profit margins and gross profit. In the meantime, we intend to expand our international programs and enhance our U.S. sales & marketing programs. We are cutting redundant operating costs within the companies to streamline our operations. To further improve our profitability, we have reorganized our management team. We achieved positive adjusted EBITDA in the third quarter 2022. I am also happy to report that our management team has implemented many initiatives that will help us achieve increased profitability and better margins. Last but not least, we have a strong group, a strong proposal pipeline, and very limited competition.
We have over $11million in cash in the bank. This means we are well-funded and well-positioned to execute our growth strategy, improve margins, increase profitability, and maintain our leadership position within the industry. Chris, our chief financial officer, would like to discuss the third quarter financials. Chris, please go ahead.
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Chris Panagiotakos Chuck, we are grateful. The total revenue for the three-month period ended September 30, 2022 was $4.4million. This is an increase of about 600,000. (or 14%) compared to the $3.9 million for September 30, 2021. The major reason for the increase in equipment and software sales is the main reason. The managed services revenue for the three months ending September 30, 2022 was slightly lower than it was in the previous year. The three-month cost of sales was $2.6 million. This is an increase of about 250,000, or 11%, over the $2.3million for the three month ended September 30, 2020. The revenue increase was the main reason for the increase in sales. The selling, general and administration expenses for the three-months ended September 30, 2022 totaled $2.1million. This represents an approximately 200,000 increase or 11% over the $1.9million for the three-months ended Sept 30, 2021.
The increase can be attributed primarily to the increased salaries due to new sales and marketing personnel and increased marketing expenditures. Adjusted EBITDA was $162,390 for the quarter compared to $104,985 adjusted EBITDA in the same period last. Common shareholders incurred a net loss of $245,619 for the three months ending September 30, 2022, compared with net income of $135.630 in the same period 2021. The quarter ended with $11.3 million in cash and cash equivalents as of September 30, 2022. This is compared to $12.1million at December 31, 2021. We are grateful. I’ll now return the call to Chuck.
Chuck Piluso Thanks. Thanks, Chris. I’d like to open it up right now for some Q&A. Do you have any questions?
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