Q4 2024 Data Storage Corp Earnings Call & Business Update
Greetings and welcome to the data storage Corporation fiscal year 2024 earnings call.
Unknown Executive: Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Unknown Executive: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note that this conference is being recorded.
I will now turn the conference over to your host Alexandra Schildt, Vice President of Crescendo Communications at the company's Investor Relations firm. Thank you Michelle you may begin.
Unknown Executive: over to your host. President of. Thank you.
Alexandra Schildt: Thank you.
Chuck Piluso: Good morning, everyone, and welcome to Data Storage Corporation's 2024 Fiscal Year Business Update Conference Call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer, and Chris Panagiotakos, Chief Financial Officer.
Chuck: Everyone and welcome to data storage Corporation's 2020 for fiscal year business update conference call on the call with US. This morning are Chuck <unk>, Chairman and Chief Executive Officer, and Chris Panic D O Tacos, Chief Financial Officer.
Unknown Executive: The company issued a press release this morning containing its 2024 fiscal year financial results, which is also posted on the company's website.
Chuck: The company issued a press release this morning, containing it's 'twenty 'twenty four fiscal year 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 2126711020.
Unknown Executive: 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.
Unknown Executive: 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 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, or similar expressions or future or conditional verbs such as will, should, would, may, and could.
Speaker Change: 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 could cause actual results performance or achievements.
Speaker Change: To differ materially from any future results performance or achievements expressed or implied by such forward looking statements.
Speaker Change: Payments preceded by followed by or that otherwise include the words believes expects anticipates intends projects estimates plans or similar expressions are future or conditional verbs such as well should what may and June.
Unknown Executive: are generally forward-looking in nature and not historical facts, although not all forward-looking statements include the foregoing.
Speaker Change: I generally forward looking in nature and not historical facts, although not all forward looking statements include the foregoing.
Unknown Executive: Although the company believes that these expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct.
Speaker Change: Although the company believes that these expectations reflected in such forward looking statements are reasonable it can provide no assurance that such expectations will prove to have been correct.
Unknown Executive: Important factors that could cause the actual results to differ materially from the company's expectations include, but are not limited to, 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 list.
Speaker Change: Important factors that could cause the actual results to differ materially from the company's expectations include but are not limited to the company's ability to benefit from the IBM cloud migration underway.
Speaker Change: The company's ability to position itself for future profitability and the companys ability to maintain its NASDAQ listing.
Unknown Executive: These risks should not be construed as exhaustive and should be read together with other cautionary statements included in the company's annual report for the year ended December 31, 2024, quarterly reports on Form 10-Q and current reports on Form 10-K filed with the Securities and Exchange Commission.
Speaker Change: These risks should not be construed as exhaustive and should be read together with other cautionary statements included in the company's annual report for the year ended December 31, 2024 quarterly reports on Form 10-Q, and current reports on Form 10-K filed with the Securities and Exchange Commission.
Unknown Executive: Any forward-looking statement speaks only as of the date on which it was initially made.
Speaker Change: Any forward looking statement speaks only as 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.
Unknown Executive: Except as required by law, the company assumes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances, or otherwise.
Unknown Executive: I'd now like to turn the call over to Chuck Piluso. Please go ahead, Chuck. Thank you, Allie.
Speaker Change: I'd now like to turn the call over to Chuck Pellucida. Please go ahead Chuck.
Speaker Change: Yeah.
Chuck Piluso: Good morning, everyone. We have made considerable progress throughout 2024, both in terms of financial performance and strategic execution. To a combination of targeted geographic expansion and a clear focus on our core strengths, we have laid the groundwork to become a global leader in cloud infrastructure services. Today, we wanted a few global single source providers of disaster recovery and cloud hosting with multi cloud solutions. This is especially true in our IBM Power Platform, where our specialization continues to offer valuable marketing and a competitive edge.
Speaker Change: Thank you Allie and good morning, everyone.
Speaker Change: We have made considerable progress throughout 2024, both in terms of financial performance and strategic execution.
Speaker Change: A combination of targeted geographic expansion and a clear focus on our core strengths. We have laid the groundwork to become a global leader in cloud infrastructure services.
Speaker Change: Today, we wanted a few global single source providers of disaster recovery and cloud hosting with multi cloud solutions.
Speaker Change: This is especially true.
Speaker Change: Hello platform, well specialization continues to offer valuable marketing and a competitive edge.
Chuck Piluso: Before we discuss the developments that we believe are building shareholder value, as well as cloud first long term direction, I'd like to begin with a brief overview of the financial performance for 2024 fiscal year. Total revenue for the year grew to $25.4 million, up 2% from $25 million in 2023. While this top-line growth is modest, it reflects deliberate transition away from low-margin, one-time projects towards more predictable, subscription-based, recurring revenue under long-term agreements. Our cloud infrastructure and disaster recovery service business segment delivered strong momentum with revenue climbing 27% year over year to $12.3 million. These services made up 51% of total revenue, demonstrating the growing importance of our recurring cloud offering to our overall business.
Speaker Change: Before we discuss the developments that we believe are building shareholder value as well as cloud first long term direction I'd like to begin with a brief overview well financial performance for 2020 for fiscal year <unk>.
Speaker Change: Total revenue for the year grew to $25 4 million up 2% from $25 million in 2023, while this topline growth is moderate modest reflects deliberate transition away from low margin onetime projects.
Speaker Change: It's more predictable subscription based recurring revenue under long term agreements.
Speaker Change: Our cloud infrastructure and disaster recovery services business segment delivered strong momentum with revenue climbing, 27% year over year to $12 3 million.
Speaker Change: These services made up 51% of total revenue demonstrating the growing importance of our recurring cloud offering to our overall business.
Chuck Piluso: We ended the year with annual recurring revenue run rate of 21.5 million, a clear indicator that our business is becoming more subscription based, stable and scalable. Net income improved significantly to $513,000, up nearly 71% from $299,000 in 2023. This reflects both margin expansion and more efficient cost structure. Adjusted EBITDA also showed strong growth, reaching 2.37 million compared to 1.64 million last year. This captures our ability to scale the business while maintaining profitability, a key component in our long-term strategy. And our balance sheet remains healthy with $12.3 million in cash and marketable securities and no debt.
Speaker Change: We ended the year with annual recurring revenue run rate of $21 5 million a clear indicator that our business is becoming more subscription based stable and scalable.
Speaker Change: Net income improved significantly to 513000 up nearly 71% from 299000 in 2023.
Speaker Change: Reflects both margin expansion and more.
Speaker Change: More efficient cost structure.
Speaker Change: Adjusted EBITDA also showed strong growth, reaching 2.3 dollars 7 million compared to 1.64 million last year.
Speaker Change: This captures our adult and scale the business, while maintaining profitability a key component in our long term strategy.
Speaker Change: And our balance sheet remains healthy with $12 3 million in cash and marketable securities and no debt.
Chuck Piluso: This provides both operational flexibility and the capacity to invest in future growth.
Speaker Change: <unk>, both operational flexibility and the capacity to invest in future growth.
Chuck Piluso: As expected, we experience a decline in one-time hardware and a slight decrease in managed service revenue, a shift that is aligned with our strategy to prioritize sustainable, recurring revenue streams. Looking beyond 2024, our five-year organic growth further illustrates the strength and resilience of our cloud business. Between the first quarter of 2020 and the first quarter of 2025, cloud-first achieved revenue expansion, driven primarily by a subscription-based cloud disaster recovery and hosting services. Over this period, the total quarterly nearly doubled, increasing from 1.86 million in Q1 2020 to 3.54 million in Q1 of 2025, representing a compounded annual growth rate of 18% for cloud-first organic growth.
Speaker Change: As expected, we experienced a decline in onetime hardware and a slight decrease in managed service revenue a shift that is aligned with our strategy to prioritize sustainable recurring revenue streams what.
Speaker Change: Looking beyond 2024.
Speaker Change: Five year organic growth further illustrates the strength and resilience of our cloud business.
Speaker Change: Between the first quarter of 2020.
Speaker Change: The first quarter of 2025 cloud first achieve revenue expansion driven primarily by our subscription based cloud disaster recovery and hosting services over this period.
Speaker Change: Total quarterly.
Speaker Change: We've doubled increasing from 1.86 million in Q1 2020, the 3.54 million in Q1 of 2025, representing a compounded annual growth rate of <unk>.
Speaker Change: 18% for cloud first organic growth.
Chuck Piluso: If we include the merger. of Flagship with Cloud First, it is a compounded annual growth rate of 30 percent. In parallel, we also observed steady growth across all services, cybersecurity subscription and management expanded, enterprise clients responded to revolving risks. Software Renewals and Office 365 contributed incremental recurring revenue. Efforts to cross-sell and upsell our clients are underway. This performance reinforces the durability of a recurring model and our ability to expand client value through a broader portfolio of integrated solutions. It also speaks to customer retention, long-term contracts and increasing reliance on our infrastructure. all of which lay the groundwork for continued organic growth and client acquisition.
Speaker Change: If we include the merger.
Speaker Change: Our flagship with cloud first it is a compounded annual growth rate of 30%.
Speaker Change: In parallel we also observed steady growth across all services cyber security subscription and management expanded enterprise clients responding to evolving risk software renewals and office 365 contributed incremental recurring revenue.
Speaker Change: That puts the cross sell and upsell our clients are under way.
Speaker Change: This performance.
Speaker Change: Reinforcing the durability of our recurring model and our ability to expand client value through a broader portfolio of integrated solutions.
Speaker Change: It also speaks to customer retention long term contracts and increasing reliance on our infrastructure.
Speaker Change: All of which lay the groundwork for continued organic growth and client acquisition.
Chuck Piluso: Now I'd like to turn over to the developments that are setting the foundation for our future growth. One of the most significant milestones of the year was our international expansion into the UK. we will officially launch Cloud First Europe Limited. This move established a regional presence and a long-term growth platform to serve a broader European market. We supported this expansion through key partnerships with BrightSolid in Scotland and Pulsar in England. We enabled the successful deployment of three Tier 3 data centers in the UK. These facilities allow us to deliver our cloud platform and disaster recovery solutions within the UK borders in full compliance with strict regulatory requirements.
Speaker Change: Now I would like to turn it over to the developments that are setting the foundation for our future growth.
Speaker Change: One of the most significant milestones of the year as our international expansion into the U K.
Speaker Change: We were officially launched cloud first Europe limited.
Speaker Change: Move established a regional present presence and a long term growth platform to serve the broader European market.
Speaker Change: We supported this expansion through key partnerships with quite solid in Scotland and posted in England.
Speaker Change: We're able to successful deployment of three tier three data centers in the U K.
Speaker Change: These facilities allow us to deliver our cloud platform and disaster recovery solutions and the UK within the UK borders in full compliance with strict regulatory requirements.
Chuck Piluso: This capability represents a powerful differentiator. Very few companies can provide an IBM PowerCloud platform. with migration services and support across the U.S., Canada, and the U.K., with consistent enterprise grade level service levels and regional compliance.
Speaker Change: This capability represents a powerful differentiator very few companies can provide.
Speaker Change: And IBM powered cloud platform with.
Speaker Change: With migration services and support across the U S, Canada, and the U K with consistent enterprise grade level service levels and regional compliance.
Chuck Piluso: To lead this new market, we appointed Colin Freedman as Managing Director of Cloud First Europe. Colin brings deep industry knowledge and leadership experience, and under his guidance, we are expecting some great things.
Speaker Change: So we just knew market, we appointed Colin Friedman as managing director of cloud first.
Speaker Change: Colin brings deep industry knowledge and leadership experience and under his guidance, we are expecting some great things.
Chuck Piluso: In addition to our geographic expansion, we also executed Structural Milestone, the merger of Flagship and Cloud First, in January of 2024. This integration enhances our internal efficiency, consolidates technical capabilities, and creates a stronger go-to-market engine. By unifying our teams and solutions, we are now better positioned to cross-sell cloud and manage services across both legacy and new client accounts. Today we serve over 500 clients across a wide range of industries, and the operational synergies are already evident. Translating into Measurable Improvements in Client Engagement and Service Delivery as well as Revenue Growth.
Speaker Change: In addition to our geographic expansion, we also executed structural milestone the merger of flagship and cloud first in January of 2024.
Speaker Change: Its integration enhances our internal efficiency consolidates technical capabilities and creates a stronger go to market engine.
Speaker Change: While unifying our teams and solutions, we are now better positioned to cross sell cloud and managed services across both legacy and new client accounts.
Speaker Change: Today, we serve over 500 clients across a wide range of industries and the operational synergies already evident.
Speaker Change: Translating into measurable improvements in client engagement and service delivery.
Speaker Change: As well as revenue growth.
Chuck Piluso: in 2024, also a year in which the market increasingly recognized our value proposition, particularly sectors with complex compliance and security requirements. Some examples of client engagements include a six-figure cloud infrastructure deal with the Canadian division of a leading Japanese motorsport manufacturer addressing complex hosting and security needs. and expanded engagement with a billion dollar insurance company, adding new cybersecurity infrastructure services to an existing relationship, a strong voter confidence in both our capabilities and partnership models.
Speaker Change: In 2024.
Speaker Change: Also a year in which the market increasingly recognize the value proposition, particularly sectors with complex compliance and security requirements.
Speaker Change: Some examples of client engagements include a six figure cloud infrastructure deal with the Canadian Division of a leading Japanese motorsport manufacture addressing complex hosting and security needs.
Speaker Change: And expansive engagement with a billion dollar of insurance company, adding new cyber security infrastructure services to an existing relationship a strong vote of confidence in both our capabilities and partnership model.
Chuck Piluso: A contract with a major U.S. medical center provider, a HIPAA-compliant cloud solution, further strengthening our presence in the healthcare sector. These contracts are more than just revenue wins, they reflect our ability to deliver mission-critical solutions to organizations with stringent compliance and performance requirements. To support our growing client base, we continue to invest in platform expansion.
Speaker Change: Our contract with the U S. A major U S medical centre provider, a HIPAA compliant cloud solution further strengthening our presence in the health care sector.
Speaker Change: Yeah.
Speaker Change: These contracts are more than just revenue wins that reflect our ability to deliver mission critical solutions to organizations with stringent compliance and performance requirements.
Speaker Change: To support our growing client base, we continue to invest in platform expansion.
Chuck Piluso: In the U.S. we added a new Tier 3 data center in Chicago, boosting performance for clients in the Midwest and adding redundancy to our North American network. With this addition, our global infrastructure footprint now spans 10 data centers. This provides the high availability, geographic diversity, and performance optimization required by enterprises, particularly those with multi-site, cross-border operations.
Speaker Change: In the U S. We added a new <unk>.
Speaker Change: Tier three data center in Chicago, boosting performance for clients in the Midwest and adding redundancy to our North American network.
Speaker Change: With this addition, our global infrastructure footprint now spans 10 data centers.
Speaker Change: It provides the high availability geographic diversity and performance optimization required by enterprises, particularly those with multi site cross border operations.
Speaker Change: Okay.
Chuck Piluso: We also observed strong growth in market awareness. In 2024, our Cloud First website attracted over 84,000 unique visitors, signaling rising interest in IBM Power Cloud migration, continuity services, and hybrid infrastructure solutions. We have also built a sales lead funnel, and our nurture list includes thousands of organizations, many with multi-location operations and complex compliance needs. With an estimated total addressable market in Europe and cross-border, IBM Organizations exceeds 50,000 companies.
Speaker Change: We also observed strong growth and market awareness.
Speaker Change: In 2024, our cloud first website attracted over 84000 unique visitors signaling rising interest in IBM power cloud migration continuity services and hybrid infrastructure solutions. We have also built a sales lead funnel.
Speaker Change: And our nurture list includes thousands of organizations, many with Multilocation operations and complex compliance needs.
Speaker Change: With an estimated total addressable market in Europe, and cross border IBM organizations exceeds 50000 companies.
Chuck Piluso: Overall in 2024 was a year of execution as the results speak for themselves. We grew a recurring cloud business, improved our bottom line, expanded internationally, and integrated our operations to better serve a global market.
Speaker Change: Overall in 2024 with a year of execution as the results speak for themselves.
Speaker Change: Grew our recurring cloud business improved our bottom line expanded internationally and integrated our operations to better serve a global market.
Chuck Piluso: As we enter 2025, a strong financial foundation. a high retention recurring revenue model, an international cloud platform, and a clear strategy to capitalize on the growing demand, particularly in regulated and global enterprise markets. Selling General and Administrative Expenses to the Year Ended December 31, 2024 were $11 million, an increase of $1.8 billion. $1.4 million or 13% as compared to $9.7 million for the year of December 31st. The increase primarily due to increasing professional fees, stock base, salaries, and travel. The adjusted limit for the year for December 31st, 2024 is 2.4 million compared to the adjusted limit of 1.6 million for the year ended December 31st.
Speaker Change: As we enter 2025.
Speaker Change: Strong financial Foundation.
Speaker Change: Our high retention recurring revenue model and international cloud platform and a clear strategy to capitalize on the growing demand, particularly in regulated and globe Global enterprise markets.
Speaker Change: Okay.
Speaker Change: Selling general and administrative expenses for the year ended December 31, 2020 for $11 million, an increase of one point.
Speaker Change: Okay.
Speaker Change: $1.4 million or 13% as compared to $9 7 million for the year December 31 increased primarily due to an increase in professional fees stock based salaries and travel.
Speaker Change: Okay.
Speaker Change: The adjusted OIBDA for the year to December 31, 2024 was 2.4 million compared to the adjusted EBITDA of $1 6 million for the year ended December 31.
Chris Panagiotakos: Chris, I'm going to send it back to you, okay? Thank you, Chuck.
Chris: Chris I'm going to send it back to you okay.
Chris: Thank you Chuck good morning, everyone.
Chris Panagiotakos: Good morning everyone. Total revenue for the year ended December 31st, 2024 was $25.4 million, an increase of approximately 2% compared to $25 million for the year ended December 31st, 2023. The increase is primarily attributed to an increase in our cloud infrastructure and disaster recovery services, as well as our VoIP services during the year. Cost of sales for the year ended December 31st, 2024 was $14.3 million, a decrease of $1.1 million or 7% compared to $15.4 million for the year ended December 31st, 2023. The decrease was mostly related to the decrease in one-time equipment and managed services related cost of sales.
Chris: Revenue for the year ended December 31, 2024 was $25 $4 million, an increase of approximately 2% compared to $25 million for the year ended December 31 2023.
Chris: The increase is primarily attributed to an increase in our cloud infrastructure and disaster recovery services as well as our Voip services during the year.
Chris: Cost of sales for the year ended December 31, 2024 was $14 3 million, a decrease of $1 1 million or 7% compared to $15 $4 million for the year ended December 31, 2023, the decrease was mostly related to the decrease in.
Chris: One time equipment and managed services related cost of sales.
Chris Panagiotakos: Selling general and administrative expenses for the year ended December 31st, 2024 were $11 million, an increase of $1.3 million or 13% as compared to $9.7 million for the year ended December 31st, 2023. The increases were primarily due to an increase in professional fees, stock-based compensation, salaries, and travel as a result of our international expansion efforts. Adjusted EBITDA for the year ended December 31st, 2024 was $2.4 million compared to adjusted EBITDA of $1.6 million for the year ended December 31st, 2023. Net income attributable to common shareholders for the year ended December 31, 2024 was $523,000 compared to net income of $382,000 for the year ended December 31, 2023.
Chris: Selling general and administrative expenses for the year ended December 31, 2024 were $11 million, an increase of $1.3 million or 13% as compared to $9 $7 million for the year ended December 31 2023.
Chris: The increases were primarily due to an increase in professional fees stock based compensation salaries and travel as a result of our international expansion efforts.
Chris: Adjusted EBITDA for the year ended December 31, 2024 was $2 4 million compared to adjusted EBITDA of $1 6 million for the year ended December 31 2023.
Chris: Net income attributable to common shareholders for the year ended December 31, 2024 was $523000 compared to net income of $382000 for the year ended December 31 2023.
Chris Panagiotakos: We ended the year with cash and marketable securities of approximately $12.3 million at December 31st, 2024, compared to $12.75 million at December 31st, 2023.
Chris: We ended the year with cash and marketable securities of approximately $12 $3 million at December 31, 2024, compared to $12 $75 million at December 31, 2023, Thank you and I will now turn the call back to Chuck.
Chris Panagiotakos: Thank you, and I will now turn the call back. Thanks, Chris.
Chuck Pellucida: Thanks, Chris with all that said and personally speaking we remained undervalued. We continue to investigate how we can uncover shareholder value communicating the value and what we have built the talent and our employees our partners and our solid financial position.
Chuck Piluso: With all that said, and personally speaking, we remained undervalued. We continue to investigate how we can uncover shareholder value, communicating the value in what we have built to talent and our employees, our partners and our solid financial position.
Unknown Executive: With that all said, I'd like to turn this over to Q&A if we have any questions. Thank you.
Speaker Change: With that all said I would like to turn the focus of Q&A, if we have any questions.
Speaker Change: Thank you and at this time, we'll conduct a Q&A session to ask a question press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Unknown Executive: And at this time, we'll conduct our To ask a question, press star 1. Press Start. you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Unknown Executive: Once again, to ask a question, press star 1.
Speaker Change: Again to ask a question press star one on your telephone keypad.
Matthew Galinko: Our first question comes from Matthew Galinko with Maxson, please state your question. Hey, good morning, thanks for taking my question and congrats on the strong year. Upward on the SG&A side of things.
Speaker Change: My first question comes from Matthew <unk> with Maxim. Please state your question.
Matthew: Hey, good morning, Thanks for taking my question and congrats on a strong year.
Speaker Change: Maybe can we start off with.
Matthew: You know kind of what you're kind of how we should be thinking about spending plans for 2025.
Matthew: And should we expect opex to trend upward on the SG&A side of things, we expect Capex just kind of some some sense of.
Matthew: You know how you guys are looking at this year.
Chuck Piluso: Thanks, Matt. I'll cover some of that.
Speaker Change: Thanks, Matt.
Chuck Piluso: I can turn it over to Chris, just for what went on with CapEx for 2024. But, you know, right now, we've invested how much money, Chris, into the UK on CapEx? It was approximately $575,000 in 2024. You know, so what we're expecting is, is that we expect the UK to be, you know, fine right now with what's installed with the CapEx. And we're expecting some billing going on in the fourth quarter, and then a January break-even for January 2026. So when we look at it, there'll be some CapEx spending. We don't expect much. How much should we spend in 2024 for the overall U.S., Chris?
Chris: I'll cover some of that I can turn it over to Chris.
Speaker Change: <unk> core what went on with Capex for 2024, but.
Chris: Right now with investors, how much money tourists into the U K.
Speaker Change: Capex.
Speaker Change: It was approximately $575000 in 2024.
Speaker Change: So what we're expecting is that we expect the UK to be.
Speaker Change: Fine right now with what's installed with the Capex and we are expecting some building going on in the fourth quarter and then January breakeven for January 2026, So when we look at it there'll be some capex spending.
Chris: We don't expect much how much do we spend in 'twenty 'twenty four for the overall U S. Chris.
Chris Panagiotakos: Top of your head, what was that number? The CapEx for 2024 was $1.2 million. So, you know, we're in a good position now and Matt, I think we've covered it before that when we hit 80%, we, you know, we keep it at 80% because we have to start depreciating the minute that we put it in place. So we're in pretty good shape right now. And as we start seeing the sales funnel move to 90% on probability of close, you know, Chuck Perillo, our CTO, does a great job at managing that. And so with that, we add equipment to where it's required for the services that they are.
Speaker Change: Talk to you ahead.
Speaker Change: What was that number.
Speaker Change: The Capex for 'twenty 'twenty four.
Speaker Change: That's $1.2 million.
Speaker Change: So you know we're in a good position now and Matt I think we've covered it before that when we hit 80%. We you know we keep it at 80% because we have to start depreciating the minute that we put it in place. So we're in pretty good shape right now and as we start seeing the sales funnel move too.
Speaker Change: 90% probability of close Chuck to allow our CTO does.
Speaker Change: It does a great job of managing that and so with that we.
Speaker Change: We have equipment that's.
Speaker Change: Required for the services that they are so I think we're in a good spot right now the U K on the colony. We added two additional two two folks one and partner side of things and the other loan sales engineering. So I think we're really okay for after this year. So I wouldn't expect much really to to increase.
Chuck Piluso: So I think we're in a good spot right now.
Matthew Galinko: The UK and the colony, we added two additional, two folks, one in partner side of things and the other on sales engineering. So I think we're really okay for this year. So I wouldn't expect much really to increase. We're pretty much in place. Got it. Thank you.
Speaker Change: We're pretty much in place.
Speaker Change: Got it thank you and then.
Chuck Piluso: And then maybe a comment. How comprehensively do you feel, you know, with the expansion into the UK and Europe? Are you feel like you're touching. on that migration or list of. Well, you know, Matt, since we spent some time together over the last few years, there's nothing that I'm satisfied with. It's just a personality thing. So can we do more? Yes. Hal Schwartz doing a great job working, I mean, as president, but actively involved in the marketing, as well as running Cloud First, which is our 95% of our revenue, working with the digital marketing companies and uncovering ways for us to be able to increase the lead generation.
Speaker Change: Maybe a common question for me, but.
Speaker Change: How how comprehensively do you feel with.
Speaker Change: Expansion into the UK and Europe.
Speaker Change: Are you covering the migration to cloud on me.
Speaker Change: It might be on power side do you feel like Youre touching most of the opportunities.
Speaker Change: And that migration or is there still more work to do.
Speaker Change: <unk>.
Speaker Change: <unk>, that's coming to market.
Speaker Change: Well you know Matt since we spent some time together over the last few years, there's nothing that I'm satisfied with it just the personality thing so could we do more yes, Hal Schwartz doing a great job working I mean, that's president, but actively involved in the marking as well as running cloud first.
Speaker Change: Which is our 95% of our revenue working with the digital marketing companies and uncovering ways for us to be able to increase the lead generation. It has slowed down slightly because a lot of folks are moving over to more of a chat GPT search to see who has the best provider of this or that.
Chuck Piluso: It has slowed down slightly because a lot of folks are moving over to more of a chat GPT search to see who's the best, you know, provider of this or that. So, you know, Hal has been working and uncovered that, by the way, with the digital marketing agency to improve the lead flow. So we had a slight dip, but it's still coming in our marketing leads, and then converting them to sales leads. So they, you know, the team does a great job at closing them. The partner on the partner's side, you know, we're trying to grow that, you know, as well.
Speaker Change: So how has been working and uncovered that by the way.
Speaker Change: With the digital marketing agency to improve the lead flow.
Speaker Change: Slight dip, but it's still coming in or our marketing leads and then converting them to sales leads so.
Speaker Change: The team does a great job at closing them.
Speaker Change: Partner on the partner side.
Speaker Change: We're trying to grow that as well so.
Matthew Galinko: So. You know, I think we're okay with it, but just never satisfied. Got it.
Speaker Change: I think we're okay with it but just never satisfied.
Chuck Piluso: And maybe one last question before I jump back in the queue, if possible. Touched a couple regulated. So maybe can you go a little bit deeper? What do you think is driving those and what kind of pipeline. We spent some money on the certifications. All of the exact certifications, I don't know, that's a conversation between, you know, you can cover with Hal Schwartz and Chuck Perillo on that. But, you know, we have all the certifications, we have all that's required in the UK on it. And so, you know, when you start looking at Moving from on-premise to, we'll call it cloud, a very general term, but let's call it cloud hosting and disaster recovery, cyber security is a key point.
Speaker Change: Got it and maybe one last question before I jump back in the queue if possible.
Speaker Change: You touched a couple of times on regulated markets I'm, hoping maybe increasing success. There. So maybe can you go a little bit deeper into.
Speaker Change: Maybe what do you think is driving those wins and what kind of pipeline is there to continue expanding into heavily regulated opportunities.
Speaker Change: But we spent some money on the certifications the all of the exact certifications I don't know that's a conversation between you know you can cover with how Schwartz and and Chuck pillow on that but.
Speaker Change: We have all the certifications we have all the all that's required in the U K on it and so you know when you start looking at.
Speaker Change: Moving from on premise to we'll call it cloud a very general term, but let's call it cloud hosting and disaster recovery.
Speaker Change: Cyber security is a key point, that's what everybody's worried about with the cloud why if I move it to the cloud you know how secure is it and we are very secure we do all of the things required to ensure and make the prospect comfortable that this is a.
Chuck Piluso: That's what everybody's worried about with the cloud. Well, if I move it to the cloud, you know, how secure is it? And we are very secure. We do all of the things required to ensure and make the prospect comfortable that this is, you know, a better environment in many cases that they can create. So regulatory, compliance, cyber security is one of the important things, and we have a very good reputation in migrating the data from on-premise to off-premise. I would say it's one of the leading things that folks come to us. You know, IBM is one of our competitors, but we do a better job at migration, in my opinion, and we are easier to deal with.
Speaker Change: A better environment in many cases.
Speaker Change: Can create so regulatory compliance cyber security is one of the important things in and we have a very good reputation in migrating the data from on premise to off premise I would say it was one of the leading things that folks come to us.
Speaker Change: IBM is one of our competitors, but we do a better job at migration in my opinion, and we are easier to deal with so when we look at regulations, we have to start thinking about cyber security and all that goes along with it but we do we've spent some time and some money on our.
Chuck Piluso: So when we look at regulations, we have to start thinking about cyber security and all that goes along with it. But we do, we've spent some time and some money on our compliance area. So that's how you end up bringing in, you know, the mid-size and hopefully the enterprise accounts. We've sold some very large accounts this, in 2024. But regulations, compliance, cyber security is key.
Speaker Change: Our compliance area. So that's how you end up bringing in.
Speaker Change: The mid size and then hopefully the enterprise accounts, we felt some very large accounts.
Speaker Change: This in 2024, but regulations compliant cyber security is key.
Speaker Change: Thank you.
Matthew Galinko: Thank you, Matt.
Matt: Thank you Matt.
Unknown Executive: Thank you.
Unknown Executive: Just a reminder, to ask a question, press star 1 on your phone. To remove your question, press star 2.
Speaker Change: Thank you just a reminder to ask a question press star one on your phone to remove your question Press Star two.
Adam Waldo: Our next question comes from Adam Waldo. Oh, yes.
Speaker Change: Our next question comes from Adam Waldo with lives more partners. Please state your question.
Unknown Executive: Good day, Chuck and Chris. I hope you Show. Hi, everyone.
Adam Waldo: Yes, Good day Chuckling, Chris I Hope you can hear me okay.
Speaker Change: Sure Hi, Adam.
Adam Waldo: One quick financial reporting question for Chris, and then some strategic and capital allocation questions for Chuck, if I may.
Speaker Change: One quick financial reporting question for Chris and then some strategic and capital allocation questions for shock if I may Chris on the financial reporting side, if you strip out the often lumpy in pretty large hardware sales from each of 2023 and 2024 consolidated results.
Matthew Galinko: Chris, on the financial reporting side, if you strip out the often lumpy and pretty large hardware sales from each of 2023 and 2024's consolidated results, what organic growth rate did the rest of the business grow, its revenue? I've got that. I have that because I've done some of the calculations, Adam, with with Chris.
Speaker Change: At what organic growth rate to the rest of the business grow its revenue.
Speaker Change: I got that.
Speaker Change: I have got on some of the calculations Adam with with Chris. So we were asked that question a bunch of times, you know joined Investor meetings, and we had 16 of them, whereas Tuesday, and Wednesday right you just take.
Chuck Piluso: So we were asked that question a bunch of times, you know, during investor meetings, and we had 16 of them last Tuesday and Wednesday, right, you just take Forget about the software renewal and hardware maintenance that occurs and you see that lumpiness that goes on, especially in our investor presentation. When we look at organic growth on subscription, cloud, disaster recovery, and cloud hosting, that organic piece, because the rest of it's kind of stable. Just looking at that, it's a 17.8% compounded annual growth rate. And when we roll Flagship in there, it's 30%.
Speaker Change: Forget about the software renewal of hardware maintenance that occurs and you see that lumpiness that goes on especially in our investor presentation would be to look at organic growth on subscription cloud disaster recovery and cloud hosting that organic piece because the rest of it's kind of stable just looking at that.
Speaker Change: 17.8% compounded annual growth rate.
Speaker Change: And when we roll flagship in there, it's 30%, but forget flagship everybody always wants to know about.
Chuck Piluso: But forget Flagship. Everybody always wants to know about what's your organic growth, but then they ask the question about what does an acquisition mean to you. Well, the acquisition meant to us was 30% compounded annual growth rate, but if you just take subscription, cloud, what we call true subscription, which is a subset of annual recurring revenue, it's slightly under 18%, it's like 17.8. Okay, that's a CAGR.
Speaker Change: So you know what's your organic growth, but then you know they ask the question about you know what does an acquisition mean to you while the acquisition meant to US was 30% compounded annual growth rate, but if you just take subscription cloud what we call a true subscription.
Which is a subset of annual recurring revenue.
Speaker Change: Lightly under 18% slide 17.8.
Speaker Change: Oh, Okay. That's a CAGR so what it had been meaningfully different just in 2024 relative to 2023, <unk> 2024 are pretty similar.
Adam Waldo: So would it have been meaningfully different just in 2024 relative to 2023?
Chris Panagiotakos: Chaco was 2024 pretty similar growth rate on I'd have to calculate that, Adam. I would have to do that. And I can do that very quickly.
Speaker Change: Great on that metric.
Speaker Change: I'd have to calculate that Adam I would have to do that and I can do that very quickly. So if you want.
Chris Panagiotakos: So if you want, send me an email, and I'll get it right back to you, or Ali can get it and stuff. But yes, I can certainly do that. But it's been kind of steady in growing. That's why I pulled that flagship on that, because 30 is a large number. But I do like the 18%. I'd like it to CB20, but it's 18. And when you look at the industry benchmarks, 18 is pretty good.
Speaker Change: And me, an email and I'll get it right I'll get it right back to you or how they can get it and stuff, but yes, I can certainly do that but you know it's been kind of steady and growing and that's why I pulled that flagship on that because you know 30 is a large number but I do like the 18% I'd like it to see be 'twenty, but I'd say.
Speaker Change: And when you look at the industry benchmarks 18th pretty good.
Adam Waldo: Okay, now switching to the strategic and capital allocation side. Look, you've been very clear for your last quarter's conference call the conference, which you were in attendance about a week or so ago. And obviously on today's call, that you're frustrated with the stock price, it trades at about point six times when you strip out your cash trades about point six times your run rate annual recurring revenue 22 million that you reported today. You I guess two questions on that.
Speaker Change: Okay, now switching to the strategic and capital allocation side look you've been very clear for the last quarter's conference call to conference.
Speaker Change: If you were in attendance about a week or so ago and obviously on today's call that youre frustrated with the stock price. It trades at about six times when you strip out your cash it trades at about six times your run rate annual recurring revenue of $22 million that you reported today.
Speaker Change: <unk> you.
Speaker Change: I guess two questions on that one at that $22 million annual recurring revenue run rate are you comfortable that you can be free cash flow neutral or better in 2025 without meeting equipment sales or would you need a small amount of equipment sales to be.
Chuck Piluso: One, at that $22 million annual recurring revenue run Are you comfortable that you can be kept free cash flow neutral or better in 2025 without meeting equipment sales? Or would you need a small amount of equipment sales to be, you know, comfortable that you'd be free cash flow positive in 2025 after you're about free cash?
Speaker Change: We are comfortable that you'd be.
Speaker Change: Free cash flow positive in 2025 after you about free cash flow neutral in 2024.
Chris Panagiotakos: I'll turn it over to Chris. You know, so I mean, we didn't have much equipment sales, you know, this year. You know, so we just didn't, if you look at, Chris, what was the percentage of ARR to total revenue in the year? It was over 80%. Correct. And what was the third quarter? Do you remember? That was a bigger number, I think. I think it was a bunch, right? You clicked on me there. I don't know. Eighty, eighty-two percent for the Q3. Yeah. So we didn't have much in equipment sales at all. And, you know, when we do the budgeting, Adam, what happens is we put a number on equipment and we just straight line it.
Chris: I'll turn it over to Chris Chris.
Chris: [laughter]. So I mean, we didn't have much equipment sales this year.
Chris: So we just didn't if you look at.
Speaker Change: Chris what was the percentage of a R. R. Two.
Chris: To total revenue in the.
Chris: For the year.
Speaker Change: Oh great.
Speaker Change: It was over 80% right.
Speaker Change: And what was the third quarter, you remember that was a bigger number I think.
Speaker Change: I think it was about I'm sorry.
Speaker Change: You clipped on me there.
Speaker Change: I don't know.
Speaker Change: <unk>, 2%.
Speaker Change: Yeah.
Speaker Change: Yeah. So we didn't have much in equipment sales at all and you know when we bought to the budgeting Adam what happens is we put a number on equipment and we just straight line. It. So we look actual to budget you can make your whole year with December you know I'm, a December 2020 for sale, which didn't happen which might roll over the future.
Chuck Piluso: So we look actual to budget. You can make your whole year with December, you know, a December twenty twenty four sale, which didn't happen, which might roll over the future quarters. But I think we're fine without equipment sales, which has not been the case, you know, previous years. So I think we're fine because Cloud First alone has, you know, when you strip it out just on cloud services, around a 30 percent EBITDA margin. So I think without equipment, we're fine. And as to the other elements of annual recurring revenue, if you take the five million dollars in software renewal and hardware maintenance, it's around a 15 percent margin.
Speaker Change: Quarters, but I think we're fine without equipment sales, which has not been the case.
Speaker Change: Previous years, So I think were fine because cloud first alone has a minus.
Speaker Change: When you strip it out just on cloud services around a 30% EBITDA.
Speaker Change: EBITDA margin, so I think without equipment were fine and as to the other elements of annual recurring revenue. If you take the $5 million and and saw for renewable in hardware maintenance that's around a 15% margin. So the real valuable things that really go on I'm going to say is subscription.
Chuck Piluso: So the real valuable things that really go on, I'm going to say, is subscription, disaster recovery and hosting and managed services.
Speaker Change: And disaster recovery in hosting and managed.
Speaker Change: Managed.
Speaker Change: Services.
Chuck Piluso: that we, you know, we could probably. I'm sorry. I was going to say, and we do between, let's say, $180,000 and $220,000 a month on those managed services, and those are fairly large accounts.
Speaker Change: We do probably.
Speaker Change: Oh, sorry, I'm, sorry, I was going to say and we do between let's say 180 and $220000 a month on those managed service is another fairly large accounts.
Adam Waldo: So it sounds as if you're feeling quite good that you set up to be pre-cash fluid neutral or positive in 2025, given your growth and investment plans, you're sitting with over 12 million of cash on the balance sheet, which is approximately half of the market cap of the stock. Increasingly, the public equity markets are dominated by algorithmic and quant trade. particularly in the micro-cap and small-cap areas. So companies are increasingly basically disciplining the public market's lack of fundamental value. their shares through stock buybacks.
Speaker Change: So it sounds as extra feeling quite good that you set up to be free cash flow neutral or positive in 2025, given your growth and investment plans youre sitting with over $12 million of cash on the balance sheet, which is approximately half the market cap of the stock.
Speaker Change: Increasingly the public equity markets are dominated by algorithmic AD quad freighters, particularly in the micro cap and small cap areas of the market.
Speaker Change: So companies are increasingly basically disappointing the public market lack of fundamental valuation of their shares through <unk>.
Chuck Piluso: To what extent has that been discussed at the board level here? And obviously, you have seems like significant financial flexibility to discipline the public markets for fair valuation of your stock through LIBEX. you know.
Speaker Change: Doc buybacks.
Speaker Change: To what extent has that been discussed at the board level here and obviously you have it.
Speaker Change: It seems like a significant financial flexibility to discipline, the public markets fair valuation of your stock through buybacks.
Speaker Change: Hmm.
Speaker Change: You know.
Chuck Piluso: I've thought about it. I brought it up to the board. I will say that because the share price where it is, we really can't use our equity for acquisition. And when we look at the cash that we have in the bank, we really don't want to do a $10 million revenue acquisition for many reasons.
Speaker Change: I've thought about it I brought it up to the board.
Speaker Change: I will say that because the share price where it is we really can't use our equity for acquisition and when we look at the cash that we happened to bank, we really don't want to do a $10 million revenue acquisition for many reasons why we need a therapist to do anymore than that level.
Chuck Piluso: I would need a therapist to do any more in that level. Frankly, you know, we need to look at $20 million revenue acquisitions. And so we're preserving that cash for organic growth primarily. And as to the buyback of the shares, I think maybe a focus might be better to focus on. Warren's. We have Warren's outstanding public warrants as well as private warrants. And I think maybe we should be using some of those shares to get rid of that overhang that's there. But actually buying back the common shares, I really rather save the money for organic growth, because I think we can do it better ourselves than to go do a $10 million revenue acquisition.
Speaker Change: Frankly, we need to look at $20 million revenue acquisitions, and so we are preserving that cash for organic growth, primarily and as to the buyback of the shares.
Speaker Change: Maybe a focus might be better to focus on.
Speaker Change: Once we have our warrants outstanding public warrants as well as private warrants and I think maybe we should be using some of those shares to get rid of that overhang that's fair.
Speaker Change: <unk> actually buying back the common shares.
Speaker Change: I really rather save the money for organic growth because I think we can we can do it better ourselves than to go to a $10 million revenue acquisition and when we start looking at those managed service providers, which we have usually around 50% of their revenue is recurring and 50% is nonrecurring.
Chuck Piluso: And when we start looking at those managed service providers, which we have, usually around 50% of their revenue is recurring and 50% is non-recurring. At that point, we'd rather be in a country in Europe, bringing us into Europe and looking at that, increasing our marketing capability, increasing our sales force and partnership programs. So I'm not going to say that we're discounting it 100%, but I think our focus on relating to buyback should be in the Warren area.
Speaker Change: That point, we'd rather be in a country in Europe, bringing us into Europe, and looking at that increasing our marketing capability, increasing our sales force and partnership programs. So I'm not going to say that we're discounting at 100%, but I think our focus some relating to buyback should begin to warrant area.
Adam Waldo: Super helpful. Thank you, Chuck, and good luck for us.
Speaker Change: Super helpful. Thank you Chuck and good.
Speaker Change: Walk for a strong 2025.
Thanks, Dan.
Speaker Change: Yeah.
Unknown Executive: Thank you, and there are no further questions at this time.
Chuck Pellucida: Thank you and there are no further questions at this time I'll hand, the floor back to Chuck <unk> for closing remarks.
Unknown Executive: I'll hand the floor back. Thank you.
Chuck Piluso: As I discussed on the call, 2024 was a year of focus and follow-through. We delivered on key financial goals, advanced our shift towards recurring revenue, and expanded our international footprint. These efforts have strengthened both our operations and our market position.
Speaker Change: Thank you.
Speaker Change: As I discussed on the call 2024.
Speaker Change: As the year of focus and follow we delivered on key financial goals advanced our shift towards recurring revenue and expanded our international footprint.
Speaker Change: These efforts have strengthened both our operations and our market position and as we move into 2025, we are building on that momentum with a clear direction, a very disciplined approach and the foundation needed to support continued growth.
Chuck Piluso: And as we move into 2025, we're building on that momentum with a clear direction, a very disciplined approach, and the foundation needed to support continued growth.
Chuck Piluso: We remain committed to providing our shareholders with meaningful updates, and I would like to thank everyone who joined our call today. We appreciate it. Thank you. Have a great day. Thank you.
Speaker Change: We remain committed to providing our shareholders with meaningful updates I would like to thank everyone, who joined our call today. We appreciate it. Thank you have a great day.
Unknown Executive: This concludes today's call.
Speaker Change: Thank you. This concludes today's call all parties may disconnect have a good day.