CSP Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 8 speakers on the call.

Operator

Good morning, and welcome to CSPI's Third Quarter 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 Pelleville. Sir, The floor is yours.

Speaker 1

Thank you, Ali. Hello, everyone, and thank you for joining us to review CSPI's fiscal 2023 Q3 results, which ended June 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'll then open the call for questions. Statements made by CSPI's management on today's call regarding the company's business that are not historical facts may be forward looking statements Estimates and continue as well as similar expressions are intended to identify forward looking statements.

Speaker 1

Forward looking statements should not be read as a guarantee of future 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 Objection upon which the segment and statements are based. 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 you filed with the Securities and Exchange Commission. Forward looking statements are based on the information available at the time those statements are made And management's good faith belief as of the time with respect to future events, all forward looking statements are qualified in their entirety By this cautionary statement, CSPI undertakes no obligation to publicly revise or update any forward looking statements whether as a result of new information, These events are otherwise after the date they are up. With that, I'll turn it over to Victor Dellivo, Chief Executive Officer. Vic, please go ahead.

Speaker 2

Thanks, Michael, and good morning, everyone. Today, we reported continued momentum for our business as revenue grew 33%. The performance was driven by the continued outperformance of our Technology Solutions business, and I believe the results reaffirm our strategy to dedicate significant resources to the segment over the past couple of years. Our other product lines and business segments performed as expected during the quarter and the business mix and tax treatment led to an increase in earnings. Gary is going to provide more details on the tax topic during his remarks.

Speaker 2

A major contributor to the momentum in the quarter was the continued conversion of the backlog to revenue, a good portion of which had been on the books for greater than 12 months as supply chain issues for the key components kept us from shipping completed orders to the customer. Our customers continue to remain loyal because of our products and solutions are the most effective, cost efficient answers to their critical needs, And we are extremely pleased to finally move this backlog to revenue. Our focus over the next few quarters to convert the remainder of this older backlog to revenue and our team is constantly engaged with our customers to keep them abreast of the supply timelines and options. It is worth noting that throughout this prolonged supply chain issue, we have not lost a single order, which I believe reflects the importance of our products and our services to the business. Turning to some of the segment's results.

Speaker 2

Our TS business revenue totaled $16,400,000 compared to $12,600,000 in the year ago fiscal Q3. As evidenced by the dramatic year over year Increase. This segment continues to be driven by customers' increased use of our implementation, installation and training capabilities. Our HPP revenue was approximately $1,300,000 in line with our expectations and compared to $700,000 a year ago fiscal Q3. While the ARIA customer base continues to grow and the pipeline remains high, recent developments will positively impact ARIA solution in the HPP segment Overall, NIM upcoming quarters years, perhaps our biggest achievement during the fiscal Q3 was our newest product launch, REO's 0 Trust Protect, which we are internally calling AZT.

Speaker 2

It has Generate a lot of enthusiasm within the organization and the early industry feedback gives us reason to be excited. It is something that we have been developing internally as we often do, and we believe it will be a major growth driver for our high performance product HPP business as we move into the fiscal 2024 and beyond. The advanced and patent AI driven technology is garnered interest from leading customers and reaffirms our belief that gives us greater confidence that it will be a game changer for CSPI. We have quite a few customers prior to the launch of AZT, and we envision it's going to accelerate adoption of the ARIA product line For fiscal 2024, we believe the success, reliability and consistency of our TS business will be complemented by the HVP business, primarily as the buzz being generated from AZT Protect converts to orders, positioning us to significantly expand revenue and gross margins from this product line in fiscal 2024 and well beyond. We believe our ability to develop this product is unique and separates CSPI from other companies in the space, Especially among larger players where we can identify a need and move on it quickly with limited development dollars, Other companies would need to evaluate, analyze the opportunity even with unlimited funds they may still lack the technical skills to develop something like AZT.

Speaker 2

So I'd like to spend a few moments describing why we are so excited about AZT. First, AZT's advancement allows us to offer A giant leap forward in the evolution of cybersecurity solutions. AZT's performance surpasses anything available on the market today. The new generation of endpoint cybersecurity protection designed for critical operational technology environment. The unique patent solution protects all of an organization endpoints from the full spectrum of cybersecurity attacks and intrusion Techniques, including the 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, Pulse attacks before any damage occurs, Ensuring seamless operations without disruptions or downtime.

Speaker 2

It lowers the risk of cybersecurity vulnerabilities, Our team believes AZT is an excellent solution for a wide range of industries, including utilities, logistics, manufacturing, pharmaceuticals, Banking and Finance, Healthcare and Energy. We are currently ramping up our sales and marketing investments to address these and other markets as We actively negotiate transactions with VARs and key international markets in order to maximize the global opportunity. During the fiscal Q3, we entered into one of these such agreements in Australia. Rapid Digital Transformation is Blurring the boundaries between IT and operational technology. OT networks have been traditionally air gapped Keep isolated from the outside world.

Speaker 2

This is no longer the case. The cyber attacks on OT networks are most vulnerable and best prevented by AZT. The product represents CSPI's latest offering of differentiated value enhanced solutions for the challenges faced by customers. As I mentioned before, we think it's going to be a significant growth driver for our company. To summarize, we have generated Substantial growth during the 1st 9 months of our fiscal year, the launch of AZT is underway.

Speaker 2

We are quite excited about the opportunities ahead. With that, I will now ask Garrett to provide a brief overview of the fiscal Q3 financial performance.

Speaker 3

Thanks, Victor. As Victor mentioned in his opening remarks, we achieved significant growth in the fiscal Q3 compared to last year's fiscal Q3. We reported revenue of $17,700,000 A 33% increase compared to $13,300,000 in the year ago fiscal 3rd quarter, as we have successfully converted some older backlog and delivered finished products to our customers. We reported gross profits of $5,900,000 or 33.4 percent of sales compared to $4,900,000 or 37.4 percent of sales in the year ago fiscal Q3. As a reminder, a function in the quarterly gross revenue is anticipated due to business mix.

Speaker 3

However, we continue to believe our annual gross margin will expand as the business transaction Our engineering and development expenses for the fiscal Q3 were $741,000 compared to $884,000 in the year ago period. The year ago costs were higher primarily due to I have personnel costs, which included outside consultants in the development of the ACT product, which as mentioned earlier, was only recently unveiled. Our SG and A expenses in Q3 were $4,600,000 compared to $4,100,000 in the year ago fiscal Q3 due to increase in variable compensation For bonuses, sales commissions from higher sales as well as payroll and initial costs Associated with the unveiling and launching of the AZT. Our tax benefit was $1,700,000 for the 3rd quarter, Primarily for the from the release of the valuation allowance against the deferred tax asset, We performed an analysis and determined that it is more likely than not that substantially all of the deferred tax asset in the U. S.

Speaker 3

Jurisdiction will be utilized. We reported net income of $2,500,000 In the fiscal Q3, for a diluted earnings per share of $0.52 compared with Net income of $684,000 or diluted earnings per share of $0.15 for the fiscal 2022 Q3. The company had cash and cash equivalents of $13,800,000 As of June 30, 2023, as compared to cash and equivalents of $23,900,000 as of September 30, 2022. The lower amount is primarily due to the strategy we implemented last year To leverage our strong balance sheet and finance certain large customer orders and preferable interest rates as well as the increased level of receivables created by product sales. However, in early Q4, A significant cash flow has been generated through the payment of receivables and the full repayment of financing provided to a customer during fiscal 2022.

Speaker 3

We believe the successful implementation of this approach Also has yielded positive results and we will entertain similar opportunities 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 September 12, 2023 to shareholders of record on the close of business on August 23, 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 a question and answer session. Thank you. Our first question is coming from Mike Price, who is an investor. Your line is live.

Speaker 4

Thank you. Good morning. Congratulations on a great quarter. Hey, previously you had said that CSP has a problem with name recognition. And it seems like if you have a revolutionary product As you call it, the AZT, have there been any discussions with anybody larger that can get this to the market Faster and in a bigger way than CSP on its own?

Speaker 2

Not currently. Right now, we just announced it less 30 days ago. So we're looking to build a customer base. And then as always, everything is on the table. If we were able To be approached, it would always be something we would look at.

Speaker 4

Okay. And you said that the repayment the payment of the receivables Taking place in the Q4, does that bring the cash back over $20,000,000

Speaker 3

Pretty close to that.

Speaker 2

Yes, yes, pretty close. It's constantly changing based on payables and It's constantly moving, but it is Right. Understand. It's close to that $20,000,000

Speaker 4

You've categorized $2,400,000 as held to maturity. With interest rates, short term rates where they are, I assume that cash is earnings a fair return, Even on a short term basis?

Speaker 5

Yes.

Speaker 4

Okay. Because I'm looking at the cash And it goes back to the question of having a company with a $60,000,000 market cap with $20,000,000 in cash and cash equivalents. The dividend is quite a bit lower than pre COVID. And also a question about the share Purchase, I think you authorized $194,000 I don't think you did anything in the previous quarter. What about the quarter just completed?

Speaker 4

Have any shares been repurchased? It's

Speaker 3

a very small number.

Speaker 4

Okay. Well, with the runway that you have, isn't this a good use of funds? I mean, it seems like this ACT Protect is the future of this company. And as shareholders, we can certainly get out in front of that by using some of the cash to repurchase shares. I appreciate the illiquidity in the stock, But whenever possible, I noticed Victor in the last window you bought a few 100 shares, which shows your confidence by opening up your wallet.

Speaker 4

It seems like the shareholders should be able to do the same.

Speaker 3

Well, we'll take that under advisement and We're constantly reviewing that with the Board. Right now, we're just investing in the AZT. And so But we'll take your

Speaker 2

Yes. And the cash fluctuation to having that 20,000,000 At times, as you see, it goes down is because some of our larger customers, these finance deals That we're doing at an interest rate, which is definitely in our favor to make their life a little easier just based on budgets That they may get preferable pricing model, but they don't want budgets So yearly instead of like multi year and those are the reasons why we're doing self financing with these larger institutions. So that cash is important for us and then having the reseller business too to get the lines of credit to buy the equipment, Having that cash allows us to have large credit lines with the big distributors and manufacturers That allow us to place these multimillion dollar orders without having to go out and get financing, Yes, especially at the rates out there. So that's why that cash sometimes is important to have there because it kind In some cases, like I said, it helps finance the deals that we may or may not get. And then second of all, it allows us to purchase the products That we need to with these big lines of credit that we have with these distributors.

Speaker 4

Okay. And the last question And

Speaker 6

the last question I don't

Speaker 2

want color with the cash.

Speaker 4

The last question or comment is, I understand at the end of a fiscal year, you have 90 days to report, but it's a little frustrating that you Take usually till mid December. It's a full, what, 75 days to see results. Is there a reason that it takes so long? I mean, I don't see anybody

Speaker 5

A lot of it

Speaker 3

depends on the audit.

Speaker 5

It depends on the audit. It depends

Speaker 3

on the audit.

Speaker 4

It depends

Speaker 3

on the time. Mike, a lot of it is dependent on the time and one of the things that we have is we've got a lot of moving parts in our closing Related to many of the products are shipped by the manufacturer and then we have to go and spend A large amount of time just determining if what the cutoff between is it good, is it in the quarter or not in the quarter. And that takes us A significant amount of time as well as the time we have to spend having the audit done.

Speaker 4

Okay. All right. I appreciate your time.

Speaker 3

We're trying to move it up.

Speaker 4

I appreciate your time and great quarter and looking forward to the end of the year. Thanks a lot.

Speaker 2

Thanks, Brian.

Speaker 5

Thank you.

Operator

Thank you. Our next question is coming from Joseph Nerges with Segrene Investments. Your line is live.

Speaker 5

Yes, good morning guys. Congratulations on a great quarter and a great product introduction with this AZT Tek Software. Well, 2 words were used. In the press release, initially you used the term revolutionary and in today's Press release you named, you used a point of potential game changer for a product and I agree wholeheartedly. Let me recommend one thing.

Speaker 5

I did review on the website. You have an extensive write up On this product, on the website, I mean really extensive. And for any current investor or potential investor, I really advise them to go to the website and review it there because there's so much detail It's hard to convey just in a conference call. I don't know if you agree with me, but there's a you really put a lot of Color on this new product. So that's something that people should look into.

Speaker 2

Appreciate it, Joe.

Speaker 5

You talked in the last press release, last conference call about Potentially expanding the managed service providers and you were talking about overseas. Have we made any headway on that? I know you talked about the Australian MSP that was just signed, but I'm assuming there's good potential for lots of parts of Especially the European area or even the UK where we are now, have we Any candidates there that we're currently talking to?

Speaker 2

We're talking to them, but we want to make sure they have commitment, right? It's not just now the product on their catalog They're going to put time and resources, not just signed a reseller application and our agreement. So the conversations are going on, but we're not going to just sign up people just to be another line on the catalog. We want to make sure that They committed to sell it.

Speaker 5

Yes. Well, I've got that. That's great. I agree with you. But with this, if they don't recognize, if the potential of this AZT Paretesh Brock, we just introduced.

Speaker 5

I mean, you should there should be a lot more serious discussions When this is now available for them in the future?

Speaker 2

Yes, yes. There's a lot there's quite a few in the U. S. That we're talking to and they're going well. I'll just leave it as that.

Speaker 5

Do we have well, how many channel partners do we have? Do you have an off the Approximately how many channel partners have we signed over the years?

Speaker 2

I would probably say 5 or 6.

Speaker 5

Okay.

Speaker 2

That specialized in selling security.

Speaker 5

Yes. And then you're talking to more like you just

Speaker 2

mentioned. Yes. All right. Yes.

Speaker 5

Have we are we still Looking for any royalties on the equity either this year or currently and possibly

Speaker 2

It's liquid, but I'm thinking it's going to be Q1. Okay. Q1. Yes, Q1 of next year. It could grow into Q4, but I'm more comfortable saying Q1.

Speaker 5

Okay. You mentioned in the press release about considerable attention from industry leaders. And I think you added to this a little bit in your current presentation, but are we talking about industry Specific leaders in the industries like you've mentioned, pharmaceuticals, transportation, energy. So we are touching the base with some And I assume in this case some of them are pretty large. When you start with utilities, most of them are pretty big.

Speaker 6

So

Speaker 2

Yes, they're all big, the ones we've been talking to.

Speaker 5

All right. Well, that's great. So the market there is huge.

Speaker 2

Yes. The OT space where they have a lot of manufacturing, oil, gas, a lot of OT, the operational technology area, those are the companies that we're talking to right now.

Speaker 5

Okay, great. And just a follow-up to the previous Question here, talking about the stock buyback. And I understand utilizing the money for marketing purposes, what we're doing in getting new deals. But when you think about a stock, well, put it this way, when you have a potential game changing revolutionary product And your stock is selling for less than one time sales, and that is less than one time sales. It certainly Would suggest that buying an opportunistic potential to buy some stock when you get the chance.

Speaker 5

Now I realize We don't have the open market is hard to buy. Some days we have very little volume. So you really are limited on what you could do. But Again, if you just look at the combination of what we have available to us now and the fact We're less than one time sales. I mean, that's almost unheard of for a technology company to be at that level.

Speaker 5

So again, thanks a lot. Great quarter and I'm hoping to hear from you guys again in early December on this. Great. Thanks again. Thanks, Joe.

Speaker 5

One other point. I mean, one of those before I leave you. I'm going to give you a historical give you from my perspective and a prediction here. Many years ago, there was a small company and it was named Haloid Corporation. And they released a new product and it was a Xerox copier.

Speaker 5

Well, the answer was the product was so successful that not long afterward, they changed the name of their company from Haloid to Xerox, I predict that we have that same potential going down that we may change the company name someday To area cybersecurity, if this AZT Protect product is successful, I think it could be. I'm changing the name of the company for you. Again, thanks a

Speaker 2

lot. Appreciate it. Thanks,

Operator

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

Speaker 6

Good morning. Maybe you guys can ask Joe for me what the new ticker is going to be? Yes.

Speaker 2

Aria.

Speaker 6

I got All kinds of different items I want to touch on. Was there any revenue this quarter from the Cruise ship business?

Speaker 2

Limited, limited.

Speaker 5

There

Speaker 2

were some though.

Speaker 6

That's still winding up.

Speaker 2

Yes, yes. They're slow to make decisions right now. They're doing well, but they're prioritizing Different projects at this point, but we're in talks. We're there. We're ready.

Speaker 2

But we're keeping The engineers busy with other projects while this other stuff is still it's moving just at a turtle's pace.

Speaker 6

So probably not Q4, maybe sometime

Speaker 2

in No, there'll be some it's there's a revenue there. It's just not at the same peak. It was once, but we are still getting revenue and projects for the various cruise lines.

Speaker 6

So it's kind of like the beginning of this accelerating back to more normal levels?

Speaker 2

We're hoping this We have a roadmap. We just have to have them execute on the roadmap.

Speaker 6

Got it. The supply chain, I'm not I know before it was like 9 months to get stuff for that ARIA hardware. What does that look like now? Are we looking at half that time period? Or you can pretty much get what you need when you need it?

Speaker 2

For the ARIA piece of it, we're probably 6 weeks now for the ARIA hardware that goes along With it, and then the AZT Protect is all software, right? So it's instantaneous For that piece of it. It's on the TS side of the house, in some product lines in manufacturers, It's pretty quick. I would say anywhere from 4 to 8 weeks. And then in certain other product lines of the same manufacturers in some cases, it's 9 months still.

Speaker 2

So it's just it varies. A lot of switching products across the board whether I don't want to name who they are, but some of the big players, it's still a lengthy process. Some of the dates we're getting is, believe it or not, is 2025. In some cases, yes, in some of the larger switches, the backlog is Pretty bad. But in some other cases, different models we can get in 4 weeks.

Speaker 2

So it's just It varies based on product line and manufacturers in some cases, but it's definitely getting better. It's not getting worse, So which is good for us. But some of the backlog that we flushed out, it was close to a year old That finally came in, and we're hoping that we continue flushing the backlog and putting that revenue to the books.

Speaker 6

And the Australian distributor, now is that strictly services or are they also Hardware?

Speaker 2

This is strictly a security company. So they're both interested. Yes, we have Both on the ADR, MDR and we are talking to a few customers on the new release of the AZT product.

Speaker 6

So are they directing customers to you or are they just reselling the area?

Speaker 2

They would be reselling it, but we're help supporting it on the technical side.

Speaker 6

Got it. The significant cash flow, so I'm assuming that's all coming back from one customer. Is that accurate?

Speaker 2

Majority from 1 customer, but there are it's probably 3 different customers, the cash flow is coming in.

Speaker 6

So the one big customer, I mean, is there a potential to run this through again with them or it's kind of like a one

Speaker 5

big customer?

Speaker 2

We've been doing it for 5 years. We've been doing it For 5 years, so and then we just signed another deal with a different customer for a 5 year deal That took a multimillion dollar order and spread it over 5 years.

Speaker 6

Got it. And these are popping up on a regular basis. I mean, are you guys using this as part of the sales pitch for these products or they're Requesting this because it's been done before or other they heard from other customers or how is it that these develop?

Speaker 2

Well, we probably have been doing it for probably the last decade, but just on a smaller, we weren't really In the market to do it, but some of the large customers that we do a lot of business with, They wanted the 3 or 5 year pricing, but they could not give it more They could cut a purchase order, but the budgets were year by year by year. So when we ended up doing one of the deals with them, then they kept requesting it and they're A phenomenal customer and they got more money than the risk is 0. So when we took it, We're like, we'll do it. And then a couple of other customers that our last deal, the customer requested it is like, hey, we want you to do this for us. And we're like, yes, No problem.

Speaker 2

They're credit worthy customer and the

Speaker 6

And it's all for delivery of product. And it's all for delivery of product now or is any of this written so the product is delivered over the life of the financing?

Speaker 2

Now the product is delivered upfront and that they're using it and then there's support that goes along with it that gets you know.

Speaker 6

So I mean, has anybody approached you to do this as an extended delivery? So we need 10 this year, 10 next year. We'll finance it through you guys and sign a long term deal like that or nothing like that?

Speaker 2

It's project by project. That's kind of how it looks like. It could be a storage product or it could be a networking project or it could be a wireless project. It's based on the projects, Not just they're usually good for 3 to 5 years. 1 of the customers we just one of the new orders we just did for a couple of $1,000,000 On this, was we did a deal price of that for 3 years and then the gear they need to upgrade All their equipment.

Speaker 2

So we did another deal with them for 5 this year this time.

Speaker 6

But do any of them involve Equipment delivered over a multi year timeframe?

Speaker 2

No. They get it all upfront.

Speaker 6

And I mean, do you see a scenario where you guys could possibly pitch that to Have a recurring sales stream over like 3 to 5 years or something or nobody wants to commit that far out?

Speaker 2

No, nobody wants to commit. We do a one It's one deal, either 3 equal payments or 5 equal payments depending on we try to do 3 year deals, 5 is unusual, But it just depends, and that's kind of how we frame it. And then when the project gets renewed, Because maybe the maintenance or the gear is becoming obsolete, then we'll try to roll them into a new opportunity.

Speaker 6

Got it. I just want to add one comment directed at Mike. There is a huge CPA shortage, huge accounting graduate shortage. I can't see the audit ramping up any sooner because All of those firms are operating shorthanded. So I would be shocked if Somehow that process can be shortened.

Speaker 2

Yes. And then one thing that a year end close is way different than a quarterly Close, right. The amount of work that the audit firm does is quite significant compared to a quarterly Close. So that's why it takes extra time. And to Gary's point, we have to wait at least 2 weeks or so to make sure the cutoff It's correct.

Speaker 2

And the orders and the product are getting put in either to Q4 or Q1 and that takes Time because we have to work with the manufacturers or the distribution looking at the cutoff and invoice date. So there's a lot more tedious work that goes into To a year end close, to make sure that all the revenue goes into the correct quarter.

Speaker 6

Yes. I mean, I think revenue recognition.

Speaker 1

Yes, heavy.

Speaker 6

Got it. Yes, I know that the rules have become so obtuse that it's difficult to follow them, The revenue recognition stuff.

Speaker 1

Exactly.

Speaker 6

And the last thing, Have there been any sales booked yet on that AZT product or we're still looking out like Q4?

Speaker 2

Q4.

Speaker 6

Got it. All right. Well, thanks so much for taking the time to answer the questions. This one was pretty entertaining. Mike and Joe added that.

Speaker 6

And Thanks again, guys. You take care as I sit here in comfortable 73 degrees, sunny Buffalo.

Speaker 2

Have a good one.

Speaker 6

That's not the rub. Yes, take care.

Operator

Thank We have a question from Joseph Nerges from Segrene Investments. Your line is

Speaker 5

This is Phil. This is just a Phil Liddbrecht on the Australian question. The name of the company is Logitech. That's the Australian company. And there's a so there's a nice article out there on this particular association with area.

Speaker 5

If he wants to the title of the article is Cybersecurity for Manufacturers' Legacy OT Systems. And so if he puts Logitech and Area Cybersecurity in his Google search, he'll find that article. So So just and for anybody, if they want to look it up, it's a nice article commentary by Gary Southwell, our General Manager on that particular product. All right. Thanks, guys.

Speaker 5

Yes. Thanks.

Operator

Thank you. And we have a question from Will Lauber with Vision Wealth Advisors. Your line is live.

Speaker 7

Yes. Can you guys just kind of clarify with the Hawkeye what I guess you're getting just international sales now and if there is any international sales, do you guys for sure get that revenue or how that works?

Speaker 3

Well, it's coming it's really slowing down, Will. There hasn't been a lot of Transactions that have gone on, there's we're getting pretty close to the end of the program. So we have had very little and then it's just a few $100,000 that we believe is going to be available.

Speaker 7

Okay. Because every once in a while, I'll see something about some other country buying some, but are they starting to get Are the international people starting to get some of the more advanced planes now that you guys aren't getting that anymore?

Speaker 3

That's what we believe because there's not that many orders coming through.

Speaker 7

Okay. And with this new ARIA product, can you kind of describe, I guess looking back when you first started this product line, I guess a couple of years ago, like what The level of interest is now with this new product compared to when you're starting out or Even like a year later or something like that?

Speaker 2

Well, the AZT piece of it, we've talked to a lot of Customers already, we've hired a couple of new sales people, but we just rolled it out, but all the feedback has been Positive. We're doing things a little different than some of the other potential companies are doing. So they're very interested in hearing What we're doing, how we're doing it, the demos are going well. We're talking to a couple of large customers. They've already asked for pricing After the first meeting, so we're enthusiastic.

Speaker 2

We're asking them they know we just rolled it out. We're asking for Feedback and they're being brutally honest, the good, bad and the ugly and it's really hasn't been any ugly, Which is good at this stage. So it's about taking the resources that we have, right, and just Getting our name out there, we're going to put some energy with marketing more than we have in the past. I think like I said, this product is just another it's a segment that needs attention. And I think the way we're doing it, We're approaching it.

Speaker 2

It's different and we're going to put some time and money against it, getting our name out there. And Like I said, we already hired 2 new salespeople over the last 30 days, a couple of insights people to focus on this and Hopefully, start generating some revenue and taking that those profits and reinvesting them to continue the growth. So that's kind of the short term game plan right now.

Speaker 7

So you said these are all very large potential customers. Usually that might imply a longer sales cycle. I mean, what is the standard sales cycle in the cybersecurity space? And How would you expect that to compare to this product?

Speaker 2

Big companies don't move fast, but this product can be we can do a POC and get it implemented inside their So there's not going to be a long POC timeline to do this. If the budgets hit correctly, we're hoping to be able to close sales in A quick banner, right? In the larger companies, we're trying to focus on different divisions, get some adoption of the product And then roll it out instead of trying to roll it out to all company wide because that would take, I would say, minimum a year To do that, so we're trying to focus on getting a department or a division to adopt the product and roll it out that way. So we can evangelize it easier as it's already being adopted inside your organization. And then the next focus is to look at some Medium sized companies, which decisions are made a lot quicker.

Speaker 2

So I can't give you how long the average sales Cycle is because on this particular product because it's been it's too new. On the SIEM product that we have, the sales cycle, I would say, is 6 months. It could be quicker and it has been 2 months, but I would say the average sales cycle is probably 4 to 6 months On the ADR and MDR.

Speaker 6

So would it be safe to say,

Speaker 7

I mean, one of the possible good points about going with the Bigger customers is that the price point is probably Somewhat of a drop in the bucket for them. I mean, would that be a safe to say or?

Speaker 2

I would Love to say that, but everybody is looking at every dollar right now. But compared to their security budget, I don't think We would cause a lot of harm if they were to adopt it throughout the organization. It's a necessary evil. And I got to believe Security is got to be number 1 on their list to make sure that there's dollars put to securing their assembly lines and Whether it's a pharmaceutical organization or manufacturing. Okay.

Speaker 6

All right. Well, thank you very much.

Speaker 2

Have a good one.

Operator

Thank you. As we have no more questions in queue at this time, I will hand it back to Mr. Delovo for any closing comments he may have.

Speaker 2

Thank you. As always, I want to thank our shareholders for the continued interest and support. We had success in the quarter converting some of the older backlog, which I believe demonstrates we are committed to fulfilling our customers' orders. Our reputation within the industry is stronger today and continues to rise and The introduction of AZT product will only help our cause as we move forward. Gary and I look forward to sharing our progress in the fiscal 2023 4th quarter and the full year ending September 30, operating results later this year.

Speaker 2

Until then, be well, stay safe and enjoy the rest of the summer.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this

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Earnings Conference Call
CSP Q3 2023
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