Data Storage (DTST -5.70%), a provider of cloud-based infrastructure, disaster recovery, and data storage solutions, reported its Q2 2025 financial results on August 14, 2025. The company posted GAAP revenue growth compared to Q2 2024 but reported GAAP results well below analyst expectations, with GAAP earnings per share of $(0.10) missing the consensus estimate by a wide margin and GAAP revenue of $5.1 million also falling short. Gross profit margins remained stable, but operating losses accelerated due to rising expenses.
Notably, the company announced a proposed sale of its CloudFirst Technologies subsidiary for $40 million, subject to shareholder approval at the annual meeting on September 10, 2025. If approved, the move could reshape the company’s focus and capital allocation. Overall, the period highlighted resilience in recurring subscription-based business lines but also underscored operational headwinds and uncertainty related to the planned divestiture.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP) | $(0.10) | $(0.03) | $(0.04) | (150.0%) |
| Revenue (GAAP) | $5.1 million | $6.2 million | $4.9 million | 4.1% |
| Gross profit | $2.5 million | $2.4 million | 4.2% | |
| Operating loss | $(0.80 million) | $(0.39 million) | (104.1%) | |
| Cash and marketable securities | $11.1 million | $12.3 million | -9.8% |
Source: Analyst estimates for the quarter provided by FactSet.
About the Business and Recent Areas of Focus
Data Storage specializes in delivering cloud infrastructure, disaster recovery, and business continuity services for enterprises, particularly in regulated industries like financial services, healthcare, and manufacturing. Its core business is built around high-reliability data hosting, backup, and recovery, with particular expertise in IBM (NYSE:IBM) Power Systems workloads , a category of enterprise servers used for processing and managing mission-critical data for large organizations.
In recent years, Data Storage has focused on expanding its recurring, subscription-based revenue streams, growing its reach in both the U.S. and European markets, and strengthening its position through acquisitions and partnerships. Key areas critical to its success include investing in up-to-date technology platforms; responding to the increasing demand for cloud and hybrid storage solutions; and pursuing strategic opportunities, like acquisitions and rebranding, to grow market share and relevance as customers’ needs evolve.
Quarter in Review: Financial and Strategic Highlights
The second quarter revealed a mixed picture. Revenue increased 4.8% from the prior year, supported by steady growth in recurring cloud and Nexxis services. These offerings provide cloud-based data storage and communications solutions under renewable contracts -- a business line that delivers stable, higher-margin income versus one-time sales. Management noted that “continued growth in subscription-based cloud and Nexxis services” helped offset weakness in equipment and software sales, which are more project based and subject to fluctuating technology budgets among enterprise customers. GAAP gross profit stood at $2.5 million, up slightly over Q2 2024. GAAP gross margin was approximately 49.3%.
This led to operating losses widening to $(0.80 million), compared to $(0.39 million) in Q2 2024. GAAP net loss attributable to shareholders reached $(0.73 million), translating to negative GAAP earnings per share. One-time or nonrecurring events did not play a significant role in the quarter’s results; rather, for the first half of 2025, expenses increased more than revenue compared to the same period in 2024.
The company continued to maintain solid liquidity, with $11.1 million in cash and marketable securities as of June 30, 2025, and remained debt free, with total GAAP liabilities falling from $4,108,250 at December 31, 2024, to $3,190,416 at June 30, 2025. Capital expenditures for the first half of fiscal 2025 were $478,811 compared to $902,571 in the first half of 2024.
The most consequential announcement was the proposed $40 million divestiture of CloudFirst Technologies, Data Storage’s main cloud infrastructure subsidiary. Management described this as a potential “value unlocking” move for shareholders. If approved, the company expects to net approximately $24 million after fees and taxes from the sale of CloudFirst Technologies Corporation.
The board has authorized a tender offer to repurchase up to 85% of outstanding shares using a large portion of the sale proceeds, subject to shareholder approval of the proposed transaction, with the balance reserved for acquisitions, innovation, and market expansion, particularly in areas like artificial intelligence and cybersecurity. The transaction remains contingent on a shareholder vote scheduled for September 10, 2025. If it's not approved, CloudFirst would remain central to the company’s operations.
Operationally, there were no major new product launches during the quarter. The company continued investing in international growth, focusing on European expansion through cloud services and local partnerships. For example, the Nexxis product line, which supplies managed communications and connectivity solutions, and CloudFirst’s European push, especially in the United Kingdom, are long-term initiatives. Management targets the first meaningful revenue from UK-based services in Q4 2025 and breakeven for that business by January 2026. Gross profit was $2.5 million, maintaining consistent margin levels, showing resilience of core recurring product lines, but trends in equipment and software sales were again negative.
Looking Ahead: Guidance and What to Watch
Data Storage’s management did not provide forward quantitative guidance for the upcoming quarter or full year, staying consistent with its recent policy. Leaders reiterated their strategic aim to reshape the company into a technology-focused enterprise, capitalizing on opportunities in high-growth markets like artificial intelligence and cybersecurity following the proposed CloudFirst sale.
If the transaction closes as planned, shareholders can expect significant capital return through a tender offer, subject to approval at the annual meeting on September 10, 2025, while the company’s operating profile will shift toward a smaller, cash-rich entity seeking new innovation pathways. If the sale does not go through, CloudFirst will remain operational and continue to receive investment from the parent company.
Looking to future quarters, investors will watch for the outcome of the September shareholder vote on the CloudFirst sale, which will determine capital structure and strategic focus for the next stage. Lack of formal forward guidance increases the importance of operational updates and execution on current initiatives.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
