Good day, ladies and gentlemen. Welcome to the Winter Wrap-Up Microcap Rodeo Virtual Conference. The next presenting company is Data Storage. If you would like to ask a question during the webcast, you may do so at any point during the presentation by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your questions. I'd now like to turn the floor over to today's host, Chuck Piluso, Chairman and CEO at Data Storage. Sir, the floor is yours.
Good afternoon, everyone. Thank you for joining. I'm a little jet-lagged. I'm in the U.K., so excuse me if I skip over some words. Anyway, a little bit about the company: we have just recently, January 1st, brought together Flagship and CloudFirst. After two and a half years of understanding Flagship, we have decided to bring that together all underneath CloudFirst. We modified the logo on CloudFirst, and it's under the leadership of Hal Schwartz. Hal's done a great job with CloudFirst and the margins and the growth. Tom Kempster, which was taking care of the business, his caretaker, I should say, and straightening out some things and working with the folks for over a year, we're expecting some good results to show the EBITDA for Flagship in 2023.
So Tom's done a great job and has moved over now to see how much of that IT dollar we can get from some of the accounts, because I'm sure by now you realize that with the size of the accounts we have, we get a very small piece of that IT dollar. So Tom's responsible now for growing that and seeing how we can grow that revenue per client. And Flagship has some great accounts, some great people from technical to sales, and so we're seeing how we can now gather together to increase the revenue. So not much has changed in the sense of infrastructure. I'm going to see if I can advance that slide. It's a little delay here. As a disclaimer, as we all know. So the companies really come together with Flagship and Data Storage.
So when we talk about family of companies, we're really talking about Flagship is actually there now as a brand along with CloudFirst. And we have Nexxis, our telecom unit that Data Storage Corporation owns 80% of that. But we are still focused in our core business is to focus on the growing migration that we see on IBM Cloud infrastructure. So this is continuing to move. At this point, we're doing this for around 12 years, and we know that this growth continues to go on. So we continue to invest in CapEx and sales and marketing on that. But everything is built around really IT solutions and managed services of this infrastructure. And as some of you know, if you've attended the conferences before, we continue to grow the client base and companies we serve. There are over 450 companies that we serve.
Our data centers, we are six data centers. I'm in the U.K. now looking at what opportunities may exist. I've announced previously that we want to start looking at Europe, looking at the U.K., and so we are meeting with folks and seeing what we believe about this marketplace. But still today, we're at six data centers in the U.S. and Canada. When we look at the company and we consider that the company really does not have any debt, as you can see from the chart that's here, other than a few leases. Chris will cover some of that. Our remaining contract value, probably most likely over $18 million. Most of you know that we have a 94% renewal rate on our customers and 92% renewal rate on our revenue. Our sales funnel continues to grow. It's north of $10 million in total contract value.
Chris can cover some of the cash pieces, but we continue to earn money on the cash that's in various programs, and we want to spend that cash both on M&A and on opportunities that might exist internationally, and as well as organic growth here in the United States. So this migration is underway. I believe I heard Hal say in a presentation today that over 7-8 million visitors came to the CloudFirst site alone in last month. There's still limited competition that we see. I mentioned our customers before, but we very much have a repeatable business and an excellent management team. Our channel partner program continues to grow under our director of channel, Steve Romweber. We've promoted some folks. We've beefed up our 24-hour service.
So we continue to grow and to focus organically, but we're fairly active at looking at companies that are synergistic to us on the M&A side. When we start looking at some of the growth, and keep in mind that this is the third quarter results that you're looking at. Hopefully, Chris will be talking about when we're expecting to file for the year, and you could take a look at the fourth quarter and then 2023. But our revenue, it's some good growth. I would like to see additional growth, but that comes sometimes at the cost of EBITDA. If you look at CloudFirst's EBITDA margins, I think Chris can correct me during his presentation whether I'm off on this, but I think it's around 30%. So frankly, I'd rather see spending some of that money more on organic growth, but we continue to do that.
But we're very careful with our cash. We're saving that for M&A and expansion. But our annual recurring revenue continues to grow, and our cloud revenue as well, which is one of our major focus. But the percentages, and if you can look at that 70-degree climb, I think it's pretty good. And then when you look at this annual recurring revenue in the baseline, so where we'll be beginning, I believe it's north of $18 million. You can see that where it says September 2023. I believe that we have started 2024 with a very good baseline. And you can see what our renewal rate is. We're pretty proud of that, but we also believe what we do is extremely sticky. We're focused in certain industries, and the reason why we're focused on these industries is because they have IBM Power Systems in it.
And by the way, when we get the IBM Power and they have not migrated their Windows x86 systems over, we typically get that too. So when you look and you do an analysis on our Salesforce systems, you'll see that a client will have multiple services with us. So you'll see cybersecurity. You'll see disaster recovery. You'll see cloud infrastructure in the IBM, and you may see cloud infrastructure on the x86. Now, what happens is these industries that are here that are financial, food, healthcare, insurance; these are the first companies that started using computers. And when they first did that, they started building these applications on these IBM systems. So they're still on them. These are custom applications that have been built around a client's business, and you could see some of the logos that are here.
I would say we're one of the clear leaders in this space, and our calculation for the United States is that 5% of the market is around $500 million in annual recurring revenue just on cloud infrastructure, disaster recovery as a service, on those two pieces. This chart, really, we had a developer say, "Would you wear the data centers and our clients and our partners?" We probably have agreements with probably 125 channel partners, but at the end of the day, we're paying commissions to probably 30 of them, and we deal with around 40 value-added resellers that rebuild our services. They might have an x86 platform in the data center. They need someplace to go for the IBM Power Systems.
By far, the average revenue per server on an IBM Power server is significantly increased over the server for the x86, but you get an idea of where we are, where some of those 450 clients are. Our services that you'll see are cloud infrastructure, disaster recovery, cybersecurity, the IT services, invoicing, data. It's just a huge marketplace, but we are highly focused on because I consider ourselves and we consider ourselves like an AWS, essentially, but for these IBM Power Systems. So the marketplace is great, and once you get the infrastructure, you can layer all the other services on top of that. Now, we're not running after to do a huge amount of managed services for a client. We'd rather have the infrastructure build on it, CloudFirst, to continue to maintain their cloud gross profit margin of 50%.
When you see the margins lower than 50%, you'll see that there were some equipment sales that happened in that particular we're not turning away equipment sales or managed services as well. Flagship has made a business out of supporting some very large accounts with their managed services. So the market's large, and we continue to focus on it to get our piece of the market share. These are case studies. You can download this, essentially, from dtst.com and off of our site. You could see what we do there. But what we do is very significant. These servers and these applications are critical to companies, and our focus is mid to enterprise-level companies. You'll get someone that might come to us that'll bill $500-$1,000 a month on a 36-month contract, but the number that goes out typically every month, most of the invoices are approximately $3,000.
We have clients that bill $1,000 and clients that bill $70,000 a month, but the number that goes out the most is around $3,000. It's getting slightly higher than that because layering on cybersecurity with it. So when we start looking at it, it's significant when you look at the addressable market and the annual recurring revenue, and it's still limited competition. There's probably 4-5 companies that really are focused in this area. We are one of the leaders in this area. And as I mentioned, it's approximately $500 million in annual recurring revenue for 5% of what we believe will be available over the next 3, 5, or 8 years. And we say that $500 million because Deutsche Bank and Citibank, they're larger than anyone. They're not going to be moving.
So we think 50% of the marketplace is actually going to stay and do what they're doing, 10% off the platform, and then there's 40% that's up for grabs for right now, maybe four or five players in it. Others will come along, but it's not so fast that someone's going to move their infrastructure on their IBM with these critical apps over to AWS. First of all, AWS does not offer this today. Microsoft can provide it through a joint venture or a partner called Skytap, and Google doesn't do it. So we don't even consider IBM, essentially, really competition. But a few of the companies, they do a good job, as I believe that we do. On visitors, take a look, and you can take a look where we are. I believe this was as of the August timeframe with 60,000 visitors. Now, that's all of our sites.
It includes Flagship, CloudFirst, and the corporation, but we have a lot of visitors. The white paper, that's the most downloaded white paper off of our site, is how to migrate your IBM Power Systems to the cloud. We have over 35,000 companies that are in our nurture database, and we continue to educate them and do things that will look at us as a trusted advisor when they're looking to when they're looking to move. Chris, you want to take over at this point and go through this?
Yes. Thank you, Chuck. Good afternoon, everybody. This slide is a summary of our 2022 performance. Our revenue for 2022 was $23.9 million, which was an increase of $9 million over the prior year. The 2021 results included seven months of our acquisition of Flagship.
Our gross profit was $8.1 million, which was an increase of $1.7 million over the prior year. The adjusted EBITDA for 2022 reflects our investment in SG&A. Our revenue for Q3 2023 was $6 million, which was an increase of $1.6 million over the prior quarter last year. Our gross profit was $2.3 million, which was an increase of $500,000 over prior quarter last year. Our adjusted EBITDA for the quarter was $487,000, which was an improvement of approximately $324,000. If you take a look at the split between ARR and NRC, you can see that the non-recurring revenue is the recurring revenue is 67%-33%. We enjoy equipment sales and hardware and software maintenance renewals, but our focus is on recurring subscription revenue.
Our year-to-date revenue for Q3 2023 was $18.8 million, which was an increase of $867,000 over prior nine months year-to-date last year. Our gross profit was $7 million, which was an increase of $942,000 over the prior nine months year-to-date last year. Our nine-month adjusted EBITDA was $1.3 million. We have already exceeded our annual adjusted EBITDA estimate, which was EBITDA of approximately $1 million by year-end. The next slide is a recap of our revenue and gross profit performance over the last 11 quarters. Our annual recurring revenue, which includes software renewal and hardware maintenance, occurs within different months throughout the year, as you can see by the chart. As you can see by the revenue stack chart, Q1 2022 included a large spike in recurring revenue and a similarly large spike in non-recurring revenue.
This was due to a sizable one-time equipment sale to a national sports team and a sizable annual subscription deal with a large ePayables company. Our gross profit has been steadily increasing since Q2 of 2022. This was achieved by consolidating operations and finding synergies. Further, we have increased our margins and improved pricing on some of our offerings. This next slide is an outline of our performance by subsidiary for the third quarter of 2023. One of our three subsidiaries has reported positive adjusted EBITDA. The negative EBITDA of $50,000 in Nexxis shows our investment in growing our sales team and our marketing programs for this division. Overall, the adjusted EBITDA for the third quarter is over $1 million, excluding the corporate overhead. This slide, there are some of our Q3 2023 and September 2023 trailing 12 months financial highlights.
Revenue for the quarter was $6 million, and our trailing 12 months revenue was $24.7 million. Our adjusted EBITDA for the quarter was $490,000. Chuck had asked about our annual filing. Our annual filing will be done around March 28th of this year, and then you'll be able to see our annual results. And Chuck, I'll now turn it back to you.
Thanks, Chris. When we started, Chris mentioned consolidation and things along those lines. Probably since October of 2023, the CTO, Chuck Paolillo, took over overseeing operations and what we call service delivery and then infrastructure management, managed services. And with that, the synergies started happening to see how we can eliminate certain subcontractors that might be watching some of our 24-hour service and bringing those in-house, seeing who has certain certifications to be able to do it to reduce our subcontractors. So that's been going on since the October timeframe. And then with that, we were very comfortable on the sales and on the operations side to kind of bring this together. So when we start looking at organic growth plans, one of them is to see what these synergies are, which has been between Flagship, the internally the companies.
If you take a look at each of the companies, there's been cross-selling that goes on. Not enough. We'd love to see more, but it is happening. Now it's a little easier because even on the accounting side, we're dealing with one accounting system as it relates to paying commissions, understanding more about how we can leverage the client base. As I mentioned, Tom Kempster now is focused on our largest accounts to see if we get more of that IT dollar, all part of organic growth plans. The sales funnel we have is significant. It continues to grow, and that's through doing search engine optimization. That's through Google AdWords by being an educational source. So we want to do more of what we're doing. So all of the team, from the directors, all of the folks, team members that we have in the company, everyone is really focused.
Our objective as a company on an organic basis is to make sure that all of our employees, all of our team members own shares in the company. So we have programs where it's not just, "I'm getting a paycheck," and that's all, which is very important. It's also that they're owning shares in the company through stock options. So we continue to do that, continue to get involvement, try to get people to want to come in more. Part of our organic growth plans also, the company will be moving into new facilities in the April timeframe. So there's a lot going on. I think, Chris, if you're not muted, how much money did we spend in CapEx approximately last year, too? Well, what did we spend approximately, Chris? You there still? Nope. I lost him.
Oh, sorry. Can you hear me?
Yeah, I can hear you. What was the number we spent recently, you think, in CapEx?
Hello?
Yeah. You're blocked out. I'll answer the question. I think it was, I believe, in excess of $1.4 million. And the reason for that is because of the sales funnel, verbal agreements we may have received. So it continues to grow organically. But if we're really going to hit some of those high numbers that we really have anticipated, what we really want to do is focus also on M&A. So we're continually looking for opportunities, companies in the range between $5 million and $20 million. If it's on the smallest side, it's because they might have some good distribution or new services to bring in. We are rolling out and involved with some AI that we have underway with that, with some of our existing customers. Cybersecurity is also a big place.
So there's a lot of room that we have to be able to do that, but we are looking at acquisitions that are synergistic. I want to keep within my timeframes considering I'm lacking sleep being in London. So as a summary, we are a very stable company. We are growing. The actual number of growth, if I look at just CloudFirst, I believe it's between 17%-18% when we look at the growth pieces. We're kind of happy with that. Love to see that go higher than 20% on it and spend some of that cash flow in that area. Our headquarters expense, if you're looking at net income and things like that, are probably between $2 million-$2.2 million. So the public company does cost some money for us and the staff that's in there, including myself.
But for the most part, we are very, very stable. We have a great management team. The clients we serve, you could see the renewal rates alone. You have to figure that we're doing something right since companies that we purchased in 2010, those clients are still with us today. So I believe that we do a pretty good job in what we do. The clients are happy. We listen to them every year. Clients can test out their disaster recovery. We do annual solution reviews to see how much additional revenue we can get or how we can change their services to satisfy them. That's it. I will take any, oh, just a few things. We have approximately, Chris, you didn't cover this, but I'll just cover it a little bit.
I believe we have it up on our DTST website. We have around 6.8 million shares that are outstanding. We have a little over 2 million warrants. We would love to see the stock get over $6 so that we can get $13 million into the company. Thank you, Chris. You get a feel for it. We have an outstanding board of directors, and we've tried to fit, and hopefully, we will get some information shortly about two new board members, potentially, that'll fulfill the diversity requirements that we have. I'm going to say that's it, and I'll take any Q&A that we have, any questions that we have.
Thanks, Chris. Thanks, Chuck. We do have time for one question. The question is, could you quantify the prospective operating expense and capital synergies that you anticipate in 2024 and beyond from your recent steps to combine the Flagship and CloudFirst organizations?
Sure. Thank you, Ellie. It's a complex question. I will say that the Flagship as a whole does not really require CapEx. Our CapEx requirements come from CloudFirst. And on those capital requirements, it's basically we're getting potentially a 36-month agreement. So when we look at the 36-month agreements, that's paid off probably in 50% of the time on that. So after 18 months, typically, I believe we recoup what that is. And as some of you know that are following us, we have leases that are 3 years. We have depreciation for 5, and we have useful life for the equipment for 7 years. But so Flagship and Nexxis do not really have CapEx requirements.
On the operating expenses, it's interesting because there's some very talented people through our whole tech team, but getting to know the techs and the technical support at Flagship, our CTO, Chuck Paolillo—we call him CJ because there's a number of Chucks—has done an excellent job working with everyone. So we have, I believe, reduced the outside contractors that might be required in certain cases. Along with that, we've brought the 24-hour, 7-day-a-week fully in-house now with staff that we have brought on board. So I believe that the operating expenses will continue to be reduced in some areas. But however, we make these transitions that go on. We just don't release a subcontractor or say for the 24-hour service to completely go away. So we're very careful with that.
But that's brought in-house, and we expect to see some good reductions in that particular area of operating expense. We are trying to hire Chris Anisi, who's director of sales, is trying to hire additional sales reps. And that is a task in itself. And we continue with Steve Romweber to continue to increase the channel partner program and our channel partners. So when we look about operating expenses, frankly, I'd like to increase the operating expenses. I'd like to reduce the amount of dividend to a slight degree so that we can have additional revenue growth. But we're very careful with not taking the chances to just say, "Let's just go spend money to have that growth." We're a little careful with that. If there's another question, I mean, I think we have some time, three minutes. Any other questions, Ellie? That's all?
No, that's all we have time for today, Chuck. But thank you very much, and I'll give it back to you for any closing remarks.
Really, no closing remarks. I mean, I will say that, as I'd mentioned a number of times, we're looking at expanding internationally. We're in the U.K. now, looking around and meeting with folks, and not going to necessarily jump in and just go spend money. We're pretty careful with that and having some great meetings. Our company is very, very stable. I believe our growth is excellent. Renewal rates continue to go up. We have cash in the bank to spend. The only thing we need to do is to increase our share price so we can do some deals with our shares as well as our cash. So anyone that's listening that is an investor, we appreciate that you're on, and hopefully, you have continued confidence in us, and we hope to see that share price move up. But thank you, and thank you for attending.
Thank you, ladies and gentlemen. That does conclude the Data Storage presentation. You may now disconnect.