Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Data Storage Corp (DTST, Financial) achieved a gross profit margin of 43.2% in Q3 2024, up from 38.9% in the same period last year.
- The company expanded its presence into high-growth, highly regulated sectors, securing significant contracts in the insurance, healthcare, and education sectors.
- DTST's Cloud First subsidiary achieved $5.5 million in revenue for the third quarter and positive net income, with a projected recurring revenue of over $20 million for 2025.
- The company has a strong financial position with $11.9 million in cash and marketable securities and no long-term debt.
- DTST has a high client renewal rate of over 90%, indicating strong customer satisfaction and retention.
Negative Points
- Total revenue for Q3 2024 was $5.8 million, a decrease of 3% compared to the same period last year.
- The decrease in revenue is attributed to lower one-time equipment and software sales and a decrease in managed services.
- Selling, general, and administrative expenses increased by 10% for the three months ended September 30, 2024, compared to the same period last year.
- Net income attributable to common shareholders decreased to $122,000 for Q3 2024, compared to $179,000 for the same period last year.
- The company faces risks related to its ability to benefit from the IBM cloud migration, maintain NASDAQ listing, and position itself for future profitability.
Q & A Highlights
Q: Can you clarify the line of sight for the 2025 services revenue, particularly regarding the $20 million figure mentioned?
A: Chuck Puo, CEO: The baseline for 2025 services revenue is over $20 million, which includes $5 to $6 million from software renewal and hardware maintenance, and around $2 to $2.4 million from managed services. This baseline accounts for a 92% client revenue renewal rate and a 94% client retention rate.
Q: Does the $20 million baseline assume the 90% renewal rate, and how does churn factor into this?
A: Chuck Puo, CEO: The baseline considers a 92% renewal rate on client revenue and 94% on client retention. While churn is minimal, the baseline includes potential churn, but most clients remain due to the complexity and cost of migrating data.
Q: Regarding cloud subscription renewals, are these customers experiencing growth in their contracts as they demand more cloud services?
A: Chuck Puo, CEO: Yes, cloud subscription renewals are generally growing. Clients often add storage and compute power, leading to a 3-to-1 ratio of contract addendums. We also have the right to increase renewal rates by up to 10%, which supports revenue growth.
Q: How does the company handle contract renewals, and is there a built-in mechanism for price increases?
A: Chuck Puo, CEO: Most contracts are for 36 months and renew for the same term. We have implemented a policy allowing up to a 10% increase upon renewal, ensuring we can adjust pricing to reflect market conditions and service enhancements.
Q: What is the impact of acquisitions on client retention and service continuity?
A: Chuck Puo, CEO: Acquisitions by P/E firms or other companies can lead to leadership changes, but clients typically remain due to the difficulty of migrating data. Our services are sticky, and we maintain strong client relationships, minimizing the impact of such changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
