Data Storage (NASDAQ:DTST) reported higher revenue and gross profit from continuing operations in its second quarter of 2026, led by growth at its Nexxis communications and connectivity subsidiary, while the company outlined plans to use its debt-free balance sheet to pursue selective technology acquisitions.
The company’s financial reporting now reflects Nexxis as its continuing operation following the September 2025 sale of its CloudFirst business for $40 million. Chairman and Chief Executive Officer Chuck Piluso said the company is operating with a more focused strategy centered on recurring revenue, disciplined capital deployment and potential acquisitions in technology markets.
Continuing-Operations Revenue and Gross Profit Rise
Nexxis provides managed business voice, internet, data transport and SD-WAN services for enterprise customers. Piluso described the subsidiary as a stable operating base with recurring revenue, customer relationships and experience in critical enterprise communications environments.
Gross profit increased 21.9% to $168,000 from $138,000 a year earlier. Gross margin expanded to 47% from 42.1%, which Panagiotakos attributed to favorable sales mix and operating leverage.
“The 9.3% year-over-year increase in revenue from continuing operations is encouraging because it demonstrates that this operating foundation continues to move forward while we pursue a broader strategy,” Piluso said.
However, selling, general and administrative expense increased 33.2% to $1.5 million, from $1.1 million in the previous year’s period. The company said the higher expense was driven principally by a $328,000 increase in non-cash stock-based compensation tied to grants for certain executives and employees, as well as a $58,000 increase in legal and consulting fees.
Data Storage posted a net loss attributable to common shareholders of $1.2 million, compared with a net loss of $732,000 in the second quarter of 2025.
Cash Position Supports Acquisition Search
Data Storage ended June 30 with approximately $9.3 million in cash and marketable securities and no long-term debt, according to management. Panagiotakos also noted that the company used $29.5 million of proceeds from sales of marketable securities to repurchase common shares through a tender offer that closed Jan. 15, 2026.
Piluso said the company intends to deploy capital, but emphasized that it will not pursue transactions simply to increase its size. He said the company is evaluating opportunities across AI infrastructure, cybersecurity, communications, software and related technology markets.
The company is seeking businesses with recurring revenue, predictable cash flow, established customer relationships, capable management teams and a path to operational and financial growth, Piluso said. Potential areas of interest include GPU infrastructure, AI-enabled software, cybersecurity, telecommunications and what Piluso described as sovereign AI opportunities for regulated industries requiring private infrastructure.
Management said it is not looking to assemble unrelated assets. Instead, Piluso said it aims to build a portfolio of technology businesses with potential synergies and room to scale.
Management Cites Valuation Discipline
During the question-and-answer session, Piluso said Data Storage has reviewed more than 100 potential opportunities, including reverse-merger proposals, but has found that many companies have either been pre-revenue or carried what he characterized as unrealistic valuations.
He said the company has encountered businesses with $5 million to $6 million in revenue seeking valuations of about $500 million. Data Storage is more interested in businesses with viable products, intellectual property, customer demand and management teams that can continue operating within a larger platform, he said.
Piluso said distressed technology businesses could be attractive in certain circumstances, particularly companies with cybersecurity software, patents or other intellectual property that may have encountered financial difficulties but retain products capable of being expanded with additional capital and operating support.
For potential acquisitions, he said Data Storage would generally consider structures involving cash, stock and earn-outs. The company would seek to place acquired businesses into new subsidiaries and provide growth capital while requiring management teams to meet performance benchmarks.
Piluso said some companies that previously approached Data Storage have returned to discussions as raising capital has become more difficult. The company uses technical advisers with backgrounds at organizations including Amazon, Google and Deloitte to evaluate products and markets, he said.
Targeting a Potential Deal by Year-End
Asked about the timing of acquisition activity, Piluso said management would like to sign a non-binding letter of intent within approximately 45 to 60 days and would prefer to close a transaction toward the end of the year, or during the first quarter if necessary.
“Our priority is not activity, it is value creation,” Piluso said. He added that the company would rather preserve flexibility than complete a transaction that does not meet its strategic and financial criteria.
Management said Nexxis will remain a focus as Data Storage evaluates broader expansion opportunities. Piluso said the company’s objective is to combine Nexxis’ recurring-revenue base with disciplined growth initiatives to expand scale, earnings capacity and long-term shareholder value.
About Data Storage (NASDAQ:DTST)
Data Storage Corporation provides data management and cloud solutions in the United States and internationally. It offers a suite of multi-cloud IT solutions, including cyber security solutions, which comprise ezSecurity, a security solution for endpoint security, system assessments, and risk analysis, as well as IBM system protection, including Ransomware defense. The company also provides data protection and recovery solutions, such as ezVault for offsite data protection; ezRecovery for fast data recovery; ezAvailability for real-time data replication with minimal recovery objectives; and ezMirror for data mirroring at the storage level.
