Data Storage (DTST -3.01%) reported its second quarter 2025 results on Aug. 14, 2025, posting total sales of $5.1 million, up 4.8% year over year, but a net loss attributable to common shareholders widened to $733,000 from $244,000 in Q2 2024. The quarter was defined by a proposed $40 million sale of Cloud First Technologies, a major capital return plan, and a strategic overhaul, as detailed in the Q2 2025 earnings call.

Cloud First sale unlocks hidden value for Data Storage

Cloud First generated EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1 million in Q2 and $2.5 million for the first half of 2025, but management noted that public markets did not fully recognize its value. The proposed sale to a private equity-backed buyer would deliver $24 million in net cash after closing costs, taxes, and fees, in addition to $11.1 million in cash on hand as of quarter-end.

"At $40,000,000, the deal represents a substantial premium to our entire market cap prior to the announcement. And after fees, taxes, working capital, commissions to investment banks, we approximate the net amount is $24,000,000. And that's $24,000,000 plus the cash in Data Storage Corporation that can be returned to shareholders and reinvested in future growth."
-- Chuck Piluso, Chairman and Chief Executive Officer

This transaction would allow DTST to return a significant portion of its enterprise value directly to shareholders and provide substantial capital for future growth or business model transformation.

Data Storage board approves major capital return to shareholders

The board has authorized a tender offer to repurchase up to 85% of outstanding shares using 85% of total cash, including sale proceeds and existing balances. After this return-of-capital event, management expects to retain sufficient resources to maintain Nasdaq listing and allocate up to 50% of funds to future acquisitions, innovation, and expansion if the Cloud First sale is completed.

"In addition, our board has authorized a tender offer to purchase up to 85% of the company's outstanding common stock. Using 85% of the cash on hand, as I mentioned, including the proceeds from the sale and our bank accounts at Data Storage Corporation. This represents a return of capital to shareholders designed to reward long-term holders. And even after returning capital, we will retain the resources necessary to remain on NASDAQ and to pursue a broader growth agenda. With 50% of the cash earmarked for acquisitions, innovation, and expansion."
-- Chuck Piluso, Chairman and Chief Executive Officer

This capital return structure is designed to reward long-term shareholders while preserving flexibility for strategic investments and compliance with public listing requirements.

Data Storage pivots to AI, cybersecurity, and SaaS after divestiture

If the sale is approved, DTST will retain only core management and its NexSys unit, with a renewed focus on platform acquisitions and organic expansion in artificial intelligence (AI), cybersecurity, and vertical software-as-a-service (SaaS). The company is already evaluating strategic partnerships and preparing for a comprehensive rebranding to reflect this new direction.

"Our plan is to reshape and rebrand Data Storage Corporation. In fact, we are already engaged in evaluations, strategic partnerships, and technology extensions. These opportunities span artificial intelligence, cybersecurity, and AI vertical SaaS solutions. And we are not limiting ourselves to just these areas alone. In either scenario, we intend to lead with focus, discipline, and a bias towards growth that we expect to drive increased value to our shareholders."
-- Chuck Piluso, Chairman and Chief Executive Officer

This strategic pivot positions DTST as a technology platform company with a clear growth and M&A orientation, aiming to capitalize on emerging enterprise IT trends rather than legacy infrastructure markets.

Looking Ahead

Management confirmed that the Cloud First sale is subject to shareholder approval at the annual meeting on Sept. 10, 2025, with closing expected soon after if approved. No specific forward revenue, EBITDA, or cost guidance was provided for the remainder of 2025, nor were baseline targets for acquisitions or new business launches articulated. Shareholders are encouraged to review the proxy statement for transaction details and near-term capital return mechanics.