CSP Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 12, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to CSPI's 4th Quarter and Fiscal Year 2023 Conference Call. At this time, all participants are in a listen only mode and a question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Michael Poliviou, IR at EVC Group. Sir, the floor is yours.

Speaker 1

Thank you, Alec. Hello, everyone, and

Speaker 2

thank you for joining us to review CSPI's fiscal 2023 full year results, which ended September 30, 2023. With me on the call today is Victor Dellovo, CSPI's Chief Executive Officer and Gary Levine, CSPI's Chief Financial Officer. After Victor and Gary conclude their opening remarks, we will then open the call for questions. Statements made by CSPI's management on today's call regarding the company's Statements that are not historical facts may be forward looking statements as the term is identified in federal securities laws. In other words, may, will, expect, believe, anticipate, Project, plan, intent, estimates and continue as well as similar expressions are intended to identify forward looking statements.

Speaker 2

Forward looking statements should not be read as a guarantee of future performance or results. The company cautions you that these statements reflect Current expectations about the company's future performance or events and are subject to several uncertainties, risks and other influences, many of which are beyond the company's control That may influence the accuracy of the statements and projections upon which the segmented statements are placed. Factors that may affect the company's results include, but are not limited To the risks and uncertainties discussed in the Risk Factors section of the Annual Report on Form 10 ks and the quarterly reports on Form 10 Q With the Securities and Exchange Commission. Forward looking statements are based on the information available at the time those statements are made and management could take the lead As of the time with respect to future events, all forward looking statements are qualified in their entirety by this cautionary statement SCSPI undertakes no obligation to publicly revise or update any forward looking statements, whether as a result of new information, future events or otherwise, after the date thereof. With that, I'll turn it over to Victor Dellovo, Chief Executive Officer.

Speaker 2

Vic, please go ahead.

Speaker 3

Thanks, Michael, and good morning, everyone. Earlier this morning, we announced our fiscal 2023 full year results, and I'm pleased to report we achieved Revenue growth of 19% compared to fiscal 2022. I believe our strong performance is due to several factors, Including the sustained contribution of the Technology Solutions business, our ability to successfully convert a sizable portion of our backlog to revenue And our proactive decision to leverage our strong balance sheet to finance large customer orders. Furthermore, we reported gross margin percentage of 34% And grew EPS well over 100% from prior year, all significant accomplishments that raises our confidence level that we And continue executing our strategy of transitioning the business to higher margin products and services. Moreover, We are continuing to experience positive momentum to kick off the 2024 as we already achieved significant achievements minutes highlighting some of our recent and exciting developments within the HPP business.

Speaker 3

As many of you already know, we entered fiscal 2023 with a level of uncertainty due to well documented supply chain issues that impacted global economies. Specific to CSPI, the inability to receive key components from suppliers kept us from shipping orders to our new customers, Raising our backlog to near record levels and dampening our revenue opportunities. However, as the supply chain issue began to ease up during the year, we started receiving some of these key components and we're able to ship finished goods and reduce the backlog to a more normalized Pre pandemic level of approximately $7,600,000 I applaud the team's ability to remain engaged with the customers throughout this period. I believe our clients' Loyalty demonstrates the value we bring to them because they recognize that the products and solutions are the most Effective cost efficient answers to their critical needs. Our performance throughout the fiscal 2023 was driven by Continued performance of our Technology Solutions or TS business, which grew compared to fiscal 2022.

Speaker 3

The success continues to be driven by our customers' increased use of implementation, installation and training capabilities. Regarding the UCaaS, it turned A corner in the second half of fiscal twenty twenty three and it is now a profitable business. We believe we'll continue to see positive Now turning to our High Performance Products and HPP business. We recorded total revenue of $6,900,000 for the fiscal year compared to $3,800,000 in fiscal 2022. The results were within our expectations.

Speaker 3

However, the level of optimism within the business is high and increasingly Growing following the recent launch of AZT Protect. AZT's advancement allows us to offer our customers a giant leap forward and the evolution of cybersecurity solutions. AZT's performance surpasses what's available on the market today and it's a new generation of endpoint application The unique patent solution protects a line of Organizations endpoints from a full spectrum of cyber attacks and intrusion techniques, including most advanced 0 day attacks, malware, ransomware, supply chain vulnerabilities, even those threats that are completely unknown to security teams. By deploying artificial intelligence capabilities, AZT halts attacks before damage occurs, ensuring seamless operations without disruption or downtime. It lowers the risk code base of security vulnerabilities exploits on endpoint devices applications to Near 0 without the need of constant patching updates.

Speaker 3

Developed internally, we knew AZT was going to be a game changer for the HPP business. So the Team has significantly targeted several high profile conferences and seminars to raise awareness of AZT, including The 18th Annual API Cybersecurity Conference, which was held in Houston earlier this month for oil and natural gas industry The Rockwell Automation Conference, which was also held last month in Boston, was the world's premier industrial automation and digital transformation event. The ICS Cybersecurity Conference, which was held in Atlanta in October, is the largest, longest running event series Focus on industrial cybersecurity. Since 2000, the conference has gathered ICS cybersecurity stakeholders across various industries and And then finally, The ManuSec U. S.

Speaker 3

Summit, which was held in October in Chicago. ManuSec is the premier conference for cybersecurity and manufacturing, Addressing sectors drives towards digital and automation and how imperative it is to balance it with security. We know this is a crowded field, so a visible on-site present at these and other events was critical and allowed the team to engage and communicate with key influences to prospective clients, including Fortune 500 Companies. The in person feedback is quite positive. And the comment we often hear from them is we see the need for something like AZT.

Speaker 3

Subsequent to the end of fiscal 2023, we received orders from a Fortune 500 chemical manufacturing to protect its critical Production application from all forms of attack, enabling production lines to continue running without disruption. We also received an order from Western Intelligence Agency to critical intelligence gathering and analysis operations from cybersecurity attacks. This new contract builds on ARIA cybersecurity Proven track record and proven security solutions for military and intelligence agencies around the world. Additionally, we launched Our AZT Protect solution in Australia via partnership with Logitech, a leading local managed security service provider. By adding AZT Protect to its portfolio, Logitech can offer a groundbreaking service protecting critical applications in operational technology and IT environments such as manufacturing, mining and government.

Speaker 3

To summarize, we gathered strong growth in our fiscal 2023 and position the company for even greater success in the coming years. Although the TS business has been the growth driver over the past few years, The emergence of AZT offering has changed the dynamics and gives us 2 businesses that can grow side by side and provide Consistent growth with significant upside potential. With that, I will now ask Gary to provide a brief overview of the fiscal year's financial performance.

Speaker 4

Thank you, Victor. For the Q4 ended September 30, we reported revenue of $15,300,000 compared to $16,700,000 in the year ago fiscal Q4. We reported a significant revenue increase Of 66% in last year's Q4, as we began to work down the record backlog, So the comparability represented a high bar. For Q4, Gross profit was $5,200,000 or 33.8 percent respectively. We also lowered compared to the year ago period.

Speaker 4

However, whereas the Supply chain was responsible for some of the choppiness. We achieved significant annual growth in fiscal 2023 compared to fiscal 2022 as we reported revenue of $6,400,000 a 19% increase compared to $54,400,000 in the fiscal year ago. As Victor mentioned, this performance is due to the continued success of converting some of the older backlog allowing us to deliver product to our customers. We reported gross profits of $21,900,000 or 34% of sales compared to $18,800,000 or 35 percent of sales in fiscal 2022. The slight decrease in gross margin compared to the year ago period was anticipated and due to the Business mix and the lower margin products that had been in backlog.

Speaker 4

We continue to believe Our annual gross margin will expand as the business transitions to a higher margin product and services. For the Q4, our engineering and development expense was $700,000 down $150,000 from the year ago Fiscal quarter with a reduction in outside contractors and not filling some open positions. Our SG and A costs for the Q4 was $4,800,000 similar to last year. For the full fiscal year, our engineering and development expense for the fiscal year was $3,100,000 Relatively flat with comparison to the year ago period. Our SG and A expenses in fiscal 2023 were $16,900,000 compared to $15,800,000 in fiscal 2022 due to increased variable Station for bonuses, sales commissions for sales, higher sales as well as payroll and initial costs associated with unveiling and launching of the AZT, which includes conferences, participation and hiring several sales people.

Speaker 4

We reported net income of $5,200,001.09 per diluted share for the fiscal year September 30, 2023, compared to net income of $1,900,000 or $0.42 per diluted share for the fiscal year ended September 30, 2022. During the last quarter of the fiscal year 2023, the company received an employment retention credit, ERC of $2,100,000 net of expenses. The ERC was not available in fiscal 2022. We had a tax benefit of $500,000 due to the release of the valuation allowance against our company's deferred tax assets. Included in the net income is stock compensation, a non cash expense of $1,100,000 The company had cash and cash equivalents of $25,200,000 as of September 30, 2023, compared to cash and cash equivalents of $24,000,000 as of September 30, 2022.

Speaker 4

The cash and cash equivalents are considerably higher compared to cash and cash equivalents of $13,800,000 for the quarter ended June 30, 2023, as significant cash flows were generated through the payment of receivables, including payment from financing sales provided to customers prior to fiscal year 2023. We believe this robust financial position allowed us to successfully implement this approach. It yielded positive results And we will entertain certain options if it meets our strictest criteria. I also want to highlight that the Board of Directors approved a quarterly dividend of $0.04 per share payable on January 9, 2024 to shareholders of record on the close of business of December 22, 2023. With that, I will turn it over to the operator to take your questions.

Operator

Thank you. At this time, we will be conducting our question and answer One moment please while we poll for questions. Thank you. Our first question is coming from Joseph Nerguez with Seagram Investments. Your line is live.

Speaker 1

Good morning, guys. How are you today?

Speaker 3

Good morning, Joe. Good morning, Joe.

Speaker 1

Okay. I see you must have shook up the market today because the market the stock is down like 3 points. So evidently it's in your press release. Let me explain what I think is going on. With the big drop in the backlog, people think That obviously sales aren't there going forward.

Speaker 1

That's the concern. Yet in your press release, you issued, You said that you thought there was Technology Solutions, which of course is the bulk of our sales right now. Is expecting a major contribution this year in 'twenty four, you're looking for good business with new customers and expanded existing customers. Is that what you're trying to convey that you expect expanding technical and service technology solutions business segment?

Speaker 3

Yes, that's correct, Joe. We budgeted for significant growth in 2024.

Speaker 1

So in effect, The drop in the backlog from last year to this year is not really going to cause a problem as far as what you were expecting for 2024 Growth, at least in that segment of the in that division going forward.

Speaker 5

That's correct.

Speaker 1

The backlog in effect, granted it's down, what was it, dollars 20,000,000 I forget what it was last year, it was $20,000,000 or something like That we had because of the we couldn't get the lot of the orders through the supply channel. That's number 1. So we're really not concerned. The backlog may be low, but business

Operator

is low.

Speaker 3

It's back to Pre pandemic levels. Basically, we were just trying to talk about where the backlog Was where it is because now it's not a factor any longer moving forward. It's pretty much business as usual for 95% of The products that we sell and we're probably not going to be discussing it any further moving forward.

Speaker 1

And the point I guess I'm asking is even though It's back to pre pandemic levels. It has no effect on what you think, what we think is going to be business in 'twenty four. We think it is sufficient to grow To grow the business in that at least in the TS division?

Speaker 3

Correct.

Speaker 1

Okay. On the Of course, the AZT product, that's dynamic product, and I don't think people realize how much that Can contribute to the future of this company. You said you added sales people and are responsible for bringing in new business. Are we talking about new business beyond the 2 press releases that were issued, 1 on the chemical company, 1 on the Intelligent Western Intelligent Agency Business? Do we have additional customers beyond that?

Speaker 3

Well, there's a pipeline. They're growing the pipeline right now, Joe.

Speaker 1

Okay. So we have a lot. And when we're talking about the pipeline, are we talking about customers that are testing it, the product at their facilities? I

Speaker 3

assume Some of them are doing POCs already. They're large Fortune 500 companies. They're the largest Companies out there, so the sales cycle might be a little longer, but they're quite engaged right from the beginning. A lot of them, we met them at the show, we talked to them and within a week They wanted to discuss the product further and some of them are already looking to set up a POC Either testing, yes, yes, proof of concept. But with the holidays, some of it's getting Pushed a little bit to the Q1 just because of Thanksgiving and Christmas, but they're quite engaged right from day 1 when we met them at the shows.

Speaker 1

Okay, great. Well, that's understandable. Just the time of year we're at right now. Talking about the existing now of course in the two press releases you issued, you never talked about the size of the contracts and I assume that Most of these people are going to be paying on a monthly basis. That's the type of Over a period of number of years, did they contract it out?

Speaker 1

Is that correct? We're talking about not upfront payment for their software, mostly on Monthly basis? Yes.

Speaker 3

No. The first seed units that we put in there were just to buy it Outright. And then as we expand, these companies are so large, Joe, that 170 locations and It was whether we boil the ocean and try to take all 170 down and that would take about a year to 2 years they said to get that Processed or do we start seeding it in 1 or 2 of their locations and expand from there? Like 1 of the government agencies were already talking to 7 different locations. Some of them had some money left over And they wanted to cut peels right away.

Speaker 3

So right now it's about customer engagement, getting them to test it, buy it And evangelize when we need references moving forward.

Speaker 1

So in both cases, they're rolling out The software in segments, let's put it that way. You said in one case, you're talking about 170 plants. Well,

Speaker 3

You can write that down. Unfortunately, we have to talk to all 170 plants because they all have 7 separate budgets. So we're going to knock one down at a time, but to get our product inside their environment saying it's running, it's working Was one of the most important factors and we did it quickly, right, with less than 60 days from beginning to end.

Speaker 1

So and just going back and From an idea from a charge standpoint, I'm assuming we bill on the basis of how many items are being how many Devices are being protected or in the case what you call endpoints. The more endpoints we protect, the higher the bill?

Speaker 3

Correct.

Speaker 1

Okay. So as we roll it out little by little, supposedly the bill is increasing little by little, let's put it that way, As they keep expanding within their divisions.

Speaker 3

Yes. Some departments will have to purchase it outright and Some of them will want to pay on a monthly basis or a yearly basis most likely, right? So

Speaker 1

they have

Speaker 3

to pay it each and every year

Speaker 1

When it comes to In some cases, it depends on how the departments decide. In some cases, it's the departments will make the decision whether they want to buy or whether they want to lease basically.

Speaker 3

Pretty much, yes.

Speaker 1

Okay. On the cash, I assume the cash a lot of the cash that we have is Short term treasury bills or how do we have that going, Gary? Is that do you have a fair amount and you're rolling over in short term treasuries or?

Speaker 4

Yes, we roll them over and say that and stay in some money market funds, but yes, we're rolling them over short term.

Speaker 1

Okay. And Logitech, how are they doing? Now I realize that you just put a PR on that, our Australian partner, have they been able to Have the same, let's say, initial success that we're having as far as interest in Australia?

Speaker 3

Yes. They're generating opportunities that we're working With them hand in hand.

Speaker 1

Okay. All right. That's all I've got right now. It sounds like you were great at price and of course the AZT product has changed It hpp dramatically from where I'm sitting.

Speaker 3

Yes, we're excited. All the feedback has been positive. No one It said, oh, I don't see the value in this. I don't understand it. We're definitely changing people's the way they look at securing endpoints In the application?

Speaker 3

So the conversations are happening frequently and they're getting it.

Speaker 1

Yes. And just one more question. Australia is an example, but there should be there's got to be additional countries out there That are demanding the same kind of reporting requirements that are being required by the U. S. And Australia.

Speaker 1

So is there an opportunity now to establish, How can I say it? Similar operations from managed security service providers in these other countries, like UK example or Germany.

Speaker 3

Yes, of course, Joe. It's just the size of our organization kind of Prohibits us moving as fast as we would like to, right? It's as I said, TS It's been doing so well that it paid for all the development of this new product, but the HVP is truly a Startup organization, right, with the new product that we believe is game changing. But yes, it's just the size right now, but we're working As hard and as efficient as we possibly can to try to talk to as many people. And like I said, we've rolled it out and we did as many shows that we could get That was into and the feedback was really, really good.

Speaker 3

And like I said, we have 50 opportunities that we're working right now just from those Couple of shows that we did over the last couple of months.

Speaker 1

50 opportunities, is that what you said?

Speaker 3

Yes, over 50. Yes, over 50. Yes.

Speaker 1

Over 50. I wonder, do we how many people do we have in the U. K? I know we have a very, very small sales force over there. Do we still have a couple of people over there?

Speaker 3

Yes, we do. Yes.

Speaker 1

And are they up to snuff on this and they really are kind of like technology solution type Salespeople, is that not correct as opposed to HPP salespeople?

Speaker 3

Correct.

Speaker 1

But they're familiar with the product.

Speaker 3

Yes, they all we cross trained all our salespeople on AZT. So they're able to at least ask the right questions and then engage The engineers on the AZT side when there's an opportunity. And some of those opportunities that we're working right now came from the TS side.

Speaker 1

Yes, I'm sure. All right. Well, thanks a lot guys. This is really exciting going forward and I appreciate the time. Thanks.

Operator

Thank you. Our next question is coming from Mike Price, who is an investor. Sir, your line is live.

Speaker 6

Good morning. Thanks for the time to ask some questions. Can you give us an idea of how big you think The market opportunity is for AZT?

Speaker 3

Multi billion.

Speaker 6

Okay. And that being said, it's nice that you're having conversations with 50 potential customers. But going back 2 quarters ago, you said that a problem CSPI has is a lack of name recognition. And last quarter after the introduction of AZT, I asked the question Of not having name recognition, is it not better and more efficient to partner with somebody that does have name recognition? And your response was that you've only been in the market for 30 days.

Speaker 6

So but the question now is, do potential customers more than 50 No CSPI and potential competitors and potential partners. Is it not more efficient? Because a lot of times The best product doesn't even get seen in the market because it's not the fastest introduced to the market.

Speaker 3

I agree with that. And we are talking to and we have signed some of the largest security resellers and integrators in the market space and we started working opportunities with them. We definitely We use as much marketing money with all the shows and then we targeted the top 20 or 30 Security focused resellers, integrators and we started talking to all of them. Some of them we met at the shows that while we were there, They saw the need and actually some of them reached out to us directly on large, large opportunities they had in the healthcare industry, Protecting Microsoft OS systems and Android that we're working in conjunction with them. So we are trying to get our name from these large security resellers as fast as possible.

Speaker 3

But they have a stringent They don't take on every single security partner. So we have, I think been fortunate that 2 of the largest ones already signed Contracts with us to represent AZT and ARIA.

Speaker 5

Okay.

Speaker 6

Last quarter, I asked and I think Joe Nour just asked also about using funds to buy shares. And prior to today, Does this not provide an opportunity with $25,000,000 in cash? I mean, the stock is down 25% today. I mean, is this not in the thought process?

Speaker 3

It is in the thought process. We talked about it this morning, Gary and

Speaker 7

I. Okay.

Speaker 6

And the final question I have, Prior to today, it's great since the last conference call that the stock price has doubled. But what shows today is The small float in the illiquidity, I couldn't sell a measurable number of shares to take a profit. And Victor, you couldn't and Joe Nergis certainly couldn't. So the question is, the market cap here is what $90,000,000 And looking at somebody like a Dragos, who I assume is a competitor, recently raised $200,000,000 with a 1 point $7,000,000,000 valuation. It seems like a big discrepancy between the CSPI and somebody like that, where CSPI supposedly has a revolutionary product and you think it's as good or better than anything out there.

Speaker 6

Can you address that and how we close the gap?

Speaker 3

We actually we saw we talked to Dragos while they were at the show too. And the thing is they're truly not a competitor. We will complement what they do. They have gaps, and our product would actually complement with them. So there's We would love to talk to companies like that.

Speaker 3

There's really no one out there that's doing exactly what we're doing on the application the way we're doing it at the Bios core level.

Speaker 6

Okay. So if you're not exactly like it, that seems that CSPI and AZT Should have more value if in fact the market is aware of it with a multibillion dollar market opportunity.

Speaker 5

I mean, what am I missing here? What am I missing here?

Speaker 3

You're not. But like the product was released end of July And we're evangelizing and rolling it out as fast as possible.

Speaker 1

Okay. All right.

Speaker 3

Appreciate it. And Dragos has been doing it for Years. So they've been at it a little longer than we have when it comes to This prior? No,

Speaker 6

no, no. No, I appreciate the fact that they've been doing it longer, but I'm talking about the discrepancy in the valuation. Sure, it might take you a while Get in there, but you're valued at $90,000,000 and they're got a valuation of $1,700,000,000 I mean that's a huge discrepancy. So Okay. Well, it looks cheap to me here.

Speaker 6

It looks awfully cheap at 17.5%. So, okay, I appreciate your time. Keep up the work.

Speaker 3

Thank you.

Speaker 5

Have a great day. Bye.

Operator

Thank you. Our next question is coming from Bret Davidson, who is a Private Investor. Your line is live.

Speaker 5

Good morning, Bret. I guess, The AZT thing, so you can sell it, You can do it on a subscription model. How long does it take to roll this out? So you sign a contract tomorrow. What's involved in rolling this out to a customer?

Speaker 3

What makes our product, which I've spoken in the past about is we can be rolled out very, very quickly. We've done a 1,000 endpoints in less than an hour. There's some little tweaking after the fact, but the way we roll our product out is like a driver. It goes on the system, then it And then it goes and looks out at all the applications. You asked a few questions and it starts protecting immediately within that, let's That hour timeframe, you're up and running.

Speaker 3

And there's a little tweaking that goes on, but very, very minor. When we rolled out the last couple, It was a couple of 100 endpoints and it was done in less than 30 minutes. We built it in conjunction with customers' feedback and that was the biggest thing, especially when we developed it for the OT Space that you cannot have downtime in manufacturing facilities at all. And That's the difference with our product. You roll it out, it does not need a reboot.

Speaker 3

And that's really, really big compared to all the other products that Kind of do what we do, but not really. You need a reboot, takes a long time. It takes months to roll out and ours is done Very, very quickly and efficiently.

Speaker 5

And that adds tremendous expense in a manufacturing environment. Yes, I can see where it would be a big advantage.

Speaker 3

Yes, see that's a difference. A lot of times with other products, you would have to have those systems be taken down. And the way we roll it out, the system does not have to be taken down. It could still be working and doing what it needs to do, in conjunction with us, Implementing our product inside that environment, no downtime.

Speaker 5

So that ends up affecting The value proposition here because that's kind of like a hidden expense in competitor product. So if you're rolling this out on top, let's say, it's a business with 10 sites. I mean, is this something that the physical location matters? So you're going to do one site at a time? Or does this Depends on what their IT infrastructure, how that's set up and you could literally just blanket 10 locations at once.

Speaker 3

We could do 10 locations at once. We could do 100 locations at once. It does not matter. All we need is just access, Whether they want us to do it or we could walk it through. The one rollout that we did with that government agency at that one We were not able to have any access to that whatsoever.

Speaker 3

It's closed environment And we just walked them through it and they within less than an hour they were up and running and they had never touched the product In their life.

Speaker 5

Now when you say you walk them through it, was this physical on-site or was this

Speaker 3

No, No, we weren't no, just over the phone. We weren't we had no access to the site nor do we have access to their systems.

Speaker 5

So you guys don't even have to be physically present to walk them through?

Speaker 3

Correct. Got

Speaker 5

it. So then all of the time Sucked up in this process is all going to be in the sales cycle.

Speaker 3

All in the sales cycle.

Speaker 5

So once you get the dotted line, You're ready to go and can roll this

Speaker 3

out. As fast as they want it rolled out, we can help them.

Speaker 5

So I mean the press releases the past few weeks have been great. With Yes, these things in the cycle, I mean, is this something we can anticipate at maybe a more frequent basis These things are going to be rolling out, announcing these new relationships?

Speaker 3

Yes. The significant ones, I'm going to say, we're evangelizing as much as we Ken, we're trying to get people to see the announcements. Some of these larger ones that we're working We'll be announcing those as soon as they hit.

Speaker 5

Got it. And the last thing I just want to touch on, I know that cruise ship thing was still winding back up. Is that is there any headway making getting that getting those John, start it back up.

Speaker 3

Yes. We started doing some cruise line work again in a little different aspect. They're doing a NAC solution. So we're starting to roll out at different locations for their network access control. So yes, that business started picking up again and we had people in Japan this week on some boats.

Speaker 3

And So yes, it's not they gave us a nice schedule in the past and that schedule hasn't Come up, it's more like, hey, I need you here in 2 weeks or 3 weeks. It's sporadic where the other ones were like, here's the next 12 ships, here's the next 12 days, this is when we need you. It was easy to plan for and that's not happening. So we're doing business with them. It's just not as organized as it was Once was.

Speaker 5

And maybe one more follow-up question. So the AZT thing, I saw Western Intelligence, and we're talking about manufacturing. And you also mentioned healthcare. Are there any other areas that kind of jump out where this would be a really good fit?

Speaker 3

It's really anywhere, right? Because when we first rolled out the announcement, it was we focused because we worked with I told you some large manufacturing companies. So we focus on the OT space, 0 downtime when we rolled that out. We rolled it out into the Windows world at first And then we rolled it out into the Linux world. So we have both different type of operating systems that We can support, in one of our key factors compared to anybody who thinks they play in the space Is that we go all the way back to XP in the early versions of Linux, right?

Speaker 3

Most companies are only doing 1 or 2 versions back. We're supporting all the way back, So like I said to XP, so that's definitely a game changer for us, especially in the OT space because a lot of these manufacturing's don't Update upgrade their systems because again, I mentioned 0 downtime. And now the latest version That we're rolling out right now is for the IT environment to where it allows patching, we can schedule things. So we're rolling that out as we speak. You probably see it and I'm announcing it now, but you'll see an announcement that we're also rolling out a full IT Product line, version of AZT.

Speaker 5

And that would be for like data centers and Correct. Got it.

Speaker 3

Yes.

Speaker 5

So that's going to be a significant number of points that you guys could hit?

Speaker 3

Correct, correct. And we're talking to some financial Tushin's right now, we're also going to talk to all our managed service customers that we're supporting right now about potentially Increasing their monthly spend by rolling out AZT on their IT servers to protect their application at the core level.

Speaker 5

So that's quite a few endpoints?

Speaker 3

Yes, quite a few endpoints. Yes, we're going to talk to every one of our managed service customers. Some of them will say yes, some of them will say no, Just depends on budgets, but that's what's going on right now with this conversation is happening as we speak with some of our larger MSP customers.

Speaker 5

Nice. Well, thanks so much for the color and look forward to continued success here.

Speaker 3

Thanks. Have a good one. Happy holidays.

Speaker 5

Thank you.

Operator

Thank you. Thank you. We have a question from Paul Sculardi, who is a Private Investor. Your line is live.

Speaker 8

Hello, gentlemen. I have several questions. The first one is, you have a revolutionary unique product In this AZT, you're a smaller unknown company and why not Go partner with Dragos or even like Palo Alto or one of these big cyber companies that have the relationships that can get this revolutionary product out there quicker Then you can on your own. That's my first question.

Speaker 3

That's I think I mentioned it earlier. We are Talking to all types of manufacturers, right, people who are in that space. I can't mention who we're talking to now, but there's quite a few conversations going on with companies that are in that security Space that we would complement, we would go side by side with, we don't compete with and we would enhance the overall security Performance in every potential environment. So yes, those conversations are going on right now.

Speaker 8

Okay. And I assume if something happens, we're going to hear about it, correct?

Speaker 3

You will hear about every exciting news that comes across The Board, I hope you guys see that I'm trying to share all the information as it comes across as soon as possible.

Speaker 8

Well, yes, I mean, if I may be really honest and with all respect, you have done an excellent job, I think, with press releases Up until today. And I think why we're seeing the reaction in the stock right now is because you did a poor job I'll explain the excitement that you have now on the call and the opportunity like the reseller contracts, the going into this can go into the networks, all Network endpoints also, the massive TAM. You did a poor job on the press release, capturing all the on AZT. So my question is, the number one part of your job is execution and you're doing a great job at that without question. You also have a responsibility to shareholders in the fact that you're a small company with a very small float And nobody knows about this company, this story or this opportunity.

Speaker 8

I like to say you're at the Super Bowl and nobody knows that you're playing. So what is your strategy to enhance shareholder value since with the core press release today, the stock shareholders are suffering So what's a massive opportunity? Like right now, the stock is at one time sales plus cash. It's profitable. It pays a dividend.

Speaker 8

It has a great balance sheet And it has a really massive opportunity in front of it. So how are you going to get the story and connect to Wall Street this massive opportunity? Number 1 is, I hope we're going to hear about every contract. Like why didn't we hear about all these reseller contracts? And if you look in the news lately, you've got Utilities are being attacked, water utilities, electric utilities, China attacks in the last 24 hours.

Speaker 8

There's massive Highlight on operational technology cybersecurity, you have a unique radical product. Nobody knows about it, so shareholders We'll suffer until that connection is made. So I want to know what you're going to do different in going forward to get this storage connected to Wall Street 4, okay, enhance shareholder value because it's a great story, but nobody knows about it.

Speaker 3

Yes. I think we talked about that This whole conversation, right, we're doing events. I'm talking to partners. We're talking to distribution lines where As I have said, the shareholders, I think their expectations sometimes may be a little bit Out of whack, offline, where they want a dividend, they want it to be increased, they want us to have earnings per share and they want us Self fund a startup, right? So it's at this stage of the game, we enhanced our marketing budget by 10x That we normally did.

Speaker 3

We hired salespeople that are industry leader salespeople that Frankly, it cost a lot, right? But we figured we'd get better quality. We're able to get into the oil and gas, talk to these Some of these large manufacturers and companies, oil gas companies directly that they had relationships in the past. And yes, that's what we're doing right now. So and we're using the largest resellers in the security space with those conversations.

Speaker 3

But as I mentioned, these companies get their doors get knocked on constantly on small security companies, I think there's over 6,000 small security companies out there wanting them to represent them. So we have to go through A 100 page form that we have to fill out, why we're different, the whole thing. And they don't want to pick up a product that the company is going to be out of business in a year or 2 because they're not funded correctly. There's a lot that goes into it. It's not just about ringing the doorbell Saying, would you want to buy some cookies, I'm here.

Speaker 3

So there's a lot that goes into that.

Speaker 8

No, my question more was your communication with The Street In getting the story out, that's execution. You're doing a great job there. Like I'm talking about why do you doing press releases, like you got some good new resellers. We don't know about that. You have 50 We don't know about that.

Speaker 8

You have 50 on

Speaker 3

Yes, but these are hot off the presses, right? We had a call immediately While these are you're literally the ink is still drying on some of these things. So you'll see things rolling out, but we were having this press Conference today and I knew a lot of this would be coming out today and you'll see a lot of things coming out in the next 2 or 3, 4 weeks And hopefully some exciting news on some opportunities that are closing.

Speaker 8

Okay. Yes. And I think that's where Taking on a strategic investor even with a big name, with It sounds like you're talking to those. I think that would be a great way as well to give you guys the name and the resources Rapidly expand this, because you have such a low structure, you're selling software, it's not going to take a lot of sales like it would for another It's a drop a lot of EPS in the bottom line. Last question, obviously, it's a small equity Structure, at some point in the future, would you consider a forward stock split so funds can have the ability to buy more shares?

Speaker 8

And maybe it's not Whatever the right time is to think about something, is that something that you consider?

Speaker 3

Yes. We've talked about that at the Board level at every meeting, what our So yes, we would consider everything and that's one of the things that we've talked about.

Speaker 8

Right. Yes. Okay. Well, in conclusion, great job on the execution. And honestly, on the press release up until today, I think you did a poor job of getting the AZT opportunity in the press release today, but that's not fatal because it's what's More important is that the opportunity is there and it's super exciting.

Speaker 8

So I just hope the communication is going to be Very clear and consistent. I think consistent communication is important. These small cap companies want to run if you want to run it like a private company, nobody's going to know you're Super Bowl. So great job on execution and I hope we're going to hear a lot more on AVP to really correct the lack of excitement in the press release today. But you corrected that in a lot of ways on the call, but we not now people have to get the story out so Wall Street connects with it.

Speaker 8

So thank you very much.

Speaker 3

Fair enough. Thanks for your feedback. Appreciate it.

Operator

Thank you. Our next question is coming from John Crotty, who is an investor. Your line is live.

Speaker 7

Hi. Thank you for taking my call. I got to tell you, I really enjoyed that last back and forth with you and Paul because those were some of my questions. I'd like to just kind of Turn and talk on a more technical side now. As Paul mentioned, there's a lot of headline news out there with all the cyber attacks, especially with China, Quote, Taiwan, Ukraine, Russia.

Speaker 7

What interested me the most was the fact the way they're breaking through the firewall, they're having a harder time coming So I'm speaking more technical now, but I think you guys are sitting in a potential sweet spot. If I understand this properly, AZT is deployed on the other The firewall, we're listening all the time, employees are now being the lead target for producing the cyber threats, whether it's through a UBS or through a Personal computer plugged into the network. And I'm saying that because I noticed you were saying the word air gapped quite a lot. And to me that means it's almost like self contained network without a direct link or constant link to the Internet. I'm just hoping you can maybe explain more To the rest of the world, because that's a real serious way of breaking in now, and I believe that's how we've seen some certain nuclear reactions go down.

Speaker 7

If you could clarify that and give me a little more understanding. Thank you so much.

Speaker 3

Okay. I'll do my best on the technical side. So where we reside Is on the in the servers, right? On the core of the servers, It's a driver that gets installed and it's about 40 meg, very, very small, uses 1% or 2% CPU utilization. And what happens is once that gets installed, it expands and it looks at every single application.

Speaker 3

Now we're talking to some customers right now that are testing it on literally over 1,000 systems That are running 1100 applications at one time. And it goes out, it looks at all 1100 And then that's the person has looked at it and says, is it a viable application? Yes, it is. This is where we're at. At that Point, it's not going to allow anything else besides what's installed to be executed on that.

Speaker 3

So if someone tries to get in And because the biggest thing is when end users open up the executables, right? And then all of a sudden then they're inside the system and then everything goes haywire at that So we're at the very beginning on the core and that's where we start protecting and that's where we're looking at all the applications and how we And then after that, that's where it's the perfect picture at that point and we stop everything immediately at That stage.

Speaker 7

Okay. And that makes sense. Is that sitting in the NVIDIA chip or is it just a software install with the driver?

Speaker 3

It's just a software installment driver. It's about 40 meg.

Speaker 7

Oh, oh, oh, small. Okay. Thank you.

Speaker 3

Yes, very, very small.

Speaker 7

Yes. And is this one last question, I'm sorry. With the AI attached to it, is it self learning? Does it retain or does it learn or how does that happen?

Speaker 3

Well, yes, it looks at it and then it looks at what the customer's environment and what's correct for that customer. And that's what the perfect model is. And then everything else that is not there, that's when it stops it and then we can write code against it that will Allow certain things to come through after the fact if we've seen it, deeming what this is the correct new environment, what it should look like.

Speaker 7

So you're starting at a static perfect world and what's different from this model or the next hour? Thank you. That makes total sense. Thank you very much.

Speaker 3

No problem.

Operator

Thank you. Our final question today is coming from Brett Davidson, who is an investor. Sir, your line is live.

Speaker 5

Back again. I just want to hop on a soapbox here for a minute. I understand the sentiments Some of the other callers and everybody would love to see the shares share price just skyrocket and This to become an overnight success and but I think patience is probably a pretty good idea at this point. I would love to see, just rapidly adopted. And I think you guys are, I guess, your nose to the grindstone Trying to push this forward, but at the same time, I have realistic expectations that it's not going to happen overnight.

Speaker 5

So I'll step back down and thanks again and we'll talk to you next quarter.

Speaker 3

Thanks, Brett.

Speaker 4

Thanks, Brett.

Operator

Thank you. As we have reached the end of our question and answer session, I will now turn the call back over to Mr. Delovo for any closing remarks.

Speaker 3

Thank you. As always, I want to thank our shareholders for the continued interest and support. Our success throughout the fiscal 2023 has given us momentum heading into 2024, as we're already off to a good start with recent AZT client engagements. CSPI has always had a Good reputation within the industry. The launch of AZT strengthens this view and I believe will allow us to engage and sit at the table with Fortune 500 Companies.

Speaker 3

Gary and I look forward to sharing our progress in fiscal 2024 Q1 in February. Until then, be well, stay safe and enjoy the holiday season. Thank you.

Speaker 1

Thank you.

Operator

Thank you, ladies and gentlemen. This does conclude today's conference, And you may disconnect your lines at this time. We thank you for your participation.

Powered by Quartr
Earnings Conference Call
CSP Q4 2023
00:00 / 00:00