CSP Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 14, 2024

There are 11 speakers on the call.

Operator

Greetings. Welcome to the CSPI's First Quarter Fiscal Year 20 24 Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

Will now turn the conference over to your host, Michael Poliviou. You may begin.

Speaker 1

Thank you, Holly. Hello, everyone, and thank you for joining us to review CSPI's fiscal 2024 First Quarter Results Conference Call, which ended December 31, 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 business are not historical facts may be forward looking statements as the terms identified in federal securities laws.

Speaker 1

The words may, will, expect, believe, anticipate, project, plan, intent, estimate and continue as well as similar expressions are intended to identify forward looking statements. 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 and other influences, many of which are beyond the company's control that may influence the accuracy of the statements and the projections upon which the segments and statements are based. Factors that may affect the company's results include, 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 filed with the Securities and Exchange Commission. Forward looking statements are based on the information available at the time those statements are made management's good faith belief as of the time with respect to future events.

Speaker 1

All forward looking statements are qualified in their entirety by this cautionary statement NCSPI 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. Victor, please go ahead.

Speaker 2

Thanks, Michael, and good morning, everyone. Early this morning, we announced our fiscal 2024 Q1 results. However, before I ask Gary to review the quarter, I want to spend a few minutes highlighting 2 developments that were recently announced as I believe these truly demonstrate our growing business prospects and continued optimism with high performance products in the Technology solution businesses. To begin, the launch of the AZT Protect offering is and continues to be a game changing development within the High Performance products or HPP business because the advancements allow us to offer our customers a giant leap forward in the evolution of cybersecurity solutions. A few days ago, we announced our largest and most significant contract to date for AZT, a multimillion dollar agreement with a global pharmaceutical company deploying AZT across its global manufacturing operation technology or OT, protecting over 40 facilities in response to the growing cybersecurity threat to OT from hostile nation states, terrorism and organized cybercrime.

Speaker 2

This customer appreciates the enormous risk of cybersecurity attacks on the facilities. It could lead to theft of intellectual properties, compromise safety and quality, regulatory fines and major disruptions to its manufacturing process. However, many other remain extremely vulnerable and are ill prepared to protect their critical assets from new wave of cybersecurity threats that can Bypass network, bypass protections in modern cloud based next generation antivirus solutions. The second development that was also recently announced was a 5 year multimillion dollar contract to provide managed service This is for a prominent Florida public college, one of the largest and most diverse institutions of higher education in the nation. We will deliver proactive monitoring, management and support for college critical infrastructure, including networking, security and private cloud services.

Speaker 2

I believe these two developments are strong indicator of the future success and it's precisely why The Board of Directors had the conference to raise its quarterly dividend to $0.05 per share. I will spend a few moments highlighting the Technology Solutions or the TS business and I will focus the majority of my comments on the AZT offering as it is the potential to dramatically change our growth curve. The TS business performed as planned We continue to be excited about the current business as well as the leads being generated on a daily basis from new and existing customers. The TS business accounted for $14,700,000 of the overall revenue and its success continues to be driven by our customers' increasing use of our implementation, installation and training capabilities. As I stated on the last call, the UCaaS has become a profitable business and we ended the fiscal Q1 with an increase in clients that based on our current information and leads flow will continue to see an upward swing in the clients' activity as we move throughout fiscal 2024.

Speaker 2

As many of you know, it's been challenging business environment for several years and the team's ability to remain engaged with customers is amazing. I believe the yes, can do attitude has enhanced our clients' loyalty because they recognize that our products and solutions are the most effective, cost efficient answer to their critical needs. For example, while our cruise related business has been relatively quiet during the following of the pandemic, the team has remained on the ready and we are beginning to see some positive developments. For example, we received orders for several ships from 1 of the cruise line operators and the consistent growth of our non cruise related shipping business is continuing as we're currently working with 1 of the largest freight operators specializing in containerized ocean exports serving numerous ports worldwide within extensive global agent network and has become one of our larger MSP customers. Turning now to our high performance products or HPP business.

Speaker 2

My comments will focus slowly on the emerging AZT offering as it continues to generate a significant amount of interest in the market that we believe will grow to over $50,000,000,000 based on the number of devices that need to be protected across the relevant verticals. We are excited about the industry's positive reaction to AZT and we will remain bullish as sales funnel is getting larger and is attracting prospects across the Fortune 500. As a reminder, AZT's advancement allows us to offer our customers a giant leap forward in the evolution of cybersecurity solutions. AZT's performance surpasses what's available on the market today and its new generation of endpoint Cybersecurity protection designed for critical operation technology environments. For example, and Based on the internal testing, we believe AZT would have stopped SolarWinds Sunburst malware using used during the attack after the initial breach.

Speaker 2

The unique patent solution protects a line organization endpoints from a full spectrum of cyber attacks and attack 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 automatically halts attacks before damage occurs, ensuring seamless operations without disruption or downtime. It lowers the risk of applications code based vulnerabilities from exploit while running on endpoint devices to near 0. This removes the need for constant security, patching updates and associated costs of production downtime. On the last call, I mentioned the number of industry events and conferences the team attended.

Speaker 2

And that each one our name and reputation is growing and we are garnering more and more attention. For example, Gary Southwell, CSPI's General Manager of Aria Cybersecurity recently hosted a webinar with retired Pfizer Global Head of Automation Engineering, Jim Lipani. They discussed a wide range of challenges manufacturers face in today's new threat landscape. They delved into issues manufacturers need to address ranging from how to select the right technology to best practice to ensure critical manufacturing operations are protected. They focus on how current passive and active cloud based security solutions are failing to guide against the new era of AI embedded attacks, creating substantial financial regulatory and reputational risk in manufacturing sectors such as pharmaceuticals.

Speaker 2

The webinar demonstrated how ARIA cybersecurity's breakthrough solutions for OT environments would have stopped the SolarWinds attack and other recent high profile attacks on critical infrastructure, where existing defenses have failed. We are planning additional webinars every quarter going forward. Additionally, we will be attending several conferences in the coming months, including the CS 4 CA Manufacturing Conference in Houston and the DistribuTECH International Conference in Orlando. Our current customers are very chemical and national security pharmaceuticals demonstrating the breadth of offering. In fact, there is no limit no industry we can't access through our AZT offering given the wide range of needs of companies dealing with constant attacks on their enterprises.

Speaker 2

Our goal is to ensure the team remains focused and is able to deliver consistent results, which basically means it's just as important to pursue smaller transactions while still hunting elephants, which can help which can take up to several months to close. Additionally, we have continued to add resellers to leverage their knowledge, expertise and customer depth to drive greater adoption of ARIA 0 Trust Protect. Including the addition this week, a leading cybersecurity advisor firm and reseller which serves around 6,000 companies worldwide, including a focus on large enterprises in the world. To summarize, we remain cautiously optimistic and continue to position the company for greater success throughout fiscal 2024. We have 2 stellar businesses, the TS business, which has been The growth driver over the past few years and the reemergence of the HPP through AZT offering is generating significant buzz throughout the organization within the industry.

Speaker 2

With that, I will now ask Gary to provide a brief overview of the fiscal Q1 financial performance. Gary?

Speaker 3

Thank you, Victor. For the Q1 ended December 31, 2023, We reported revenue of $15,400,000 compared to $18,300,000 in the year ago fiscal Q1. The revenue could have been higher that is if certain contracts were signed as expected towards the end of Q1. However, there were push outs to the end of the year in the holiday season and signed contracts were signed earlier this quarter and will benefit fiscal Q2 revenue. Our Q1 gross revenue was $4,100,000 or 26.6 percent of revenue compared to $5,800,000 or 31.7 percent of revenue in the same prior year period.

Speaker 3

The decrease in gross margin compared to the year ago period was anticipated was due to the mix of business and the lower margin products. We continue to believe our gross margin will expand as the business transitions, especially the AZT offering to higher margin products and services. For the 1st fiscal quarter, our engineering and development expenses were $700,000 $173,000 lower from the year ago fiscal quarter as we reduced outside contractors and elected to not fill some open positions. Our SG and A costs for the fiscal Q1 was $3,700,000 compared to $3,600,000 in the year ago fiscal Q1.

Speaker 1

The slight

Speaker 3

Year over year increase is attributable to the addition of several sales people and increased conference participation to help us raise awareness of the AZT offering. We reported a slight net loss of $73,000 or $0.02 per diluted share For the fiscal Q1 ended December 31, 2023, compared to the net income of $1,000,000 or $0.21 per diluted share for the fiscal Q1 ended December 31, 2022. The company had cash and cash equivalents of $25,600,000 as of December 31, 2023 compared to cash and cash equivalents of $25,200,000 as of September 30, 2023. We believe our robust financial position allows us to be flexible and successfully implement our operating initiatives. And if necessary, leverage this to financial to finance large customer agreements, which have been highly successful in the past for CSPI.

Speaker 3

As Victor mentioned earlier, the Board of Directors approved an increase in the quarterly dividend to $0.05 per share payable on March 8, 2024 to shareholders of record on the close of business on February 26, 2024. With that, I will turn it over to the operator to take your questions.

Operator

Certainly. At this time, we will be conducting a question and answer session. Your first question for today is coming from Brett Davidson with Investletter.

Speaker 4

Good morning.

Speaker 3

Good morning, Brad.

Speaker 4

Must be pretty satisfying to finally land that bigger deal.

Speaker 2

Oh my God.

Speaker 4

And I'm thinking too, So as far as salespeople, I know you added some in the past. Has that changed your thinking any? Is there plans to add more along the sales lines or Are you guys pretty set right now?

Speaker 2

No. We're interviewing other people right now. So we'll we plan on adding to that this quarter

Speaker 5

in the future.

Speaker 4

Has it changed like the company's compensation philosophy As far as share grants or kind of like tying these people to the prospects of the company overall?

Speaker 2

All that is on the table when we talk to these individuals.

Speaker 4

Yes. I mean, I'd love to see the people that are working there and selling this thing highly invested The performance of the company, I think that would be just a great idea. And then a little bit on the revenue recognition of that contract the other day, how is that going to run through The income statement, is that going to be all at once or is that going to be spread out over time?

Speaker 3

That's all at once.

Speaker 4

Okay. So that will drop this coming quarter. Nice. And last time we talked, I know that the cruise business was still kind of Slow getting rolling here again. Has that changed at all?

Speaker 4

Is there any more progress on the cruise ship business?

Speaker 2

Yes. We made some progress on a little different work that we've done in the past. I can't mention what kind of work we're doing with them, but it's we kind of moved into A new technology with the cruise line and we're rolling it out to a bunch of ships. We won't have to travel as much as we used to in the past. We can do it a lot remote.

Speaker 2

But, yes, it gave us a new form of income from these cruise lines that will be coming over the next couple of quarters.

Speaker 4

And what is the size of that business look like?

Speaker 2

It's in the 100 of 1000.

Speaker 4

Got it. And is this applicable to pretty much all the cruise lines or is this just like certain customers that you'll take advantage of it?

Speaker 2

No, every cruise line could do it. We're just not talking to every cruise line about it yet. Getting in front of them is half the battle.

Speaker 4

Yes. Interesting. And the that deal with the pharmaceutical company, I know you guys did not release the name of that. Are you guys able to use the name of that company when you are Discussing sales with other potential customers?

Speaker 2

With permission, yes.

Speaker 4

So that is a possibility.

Speaker 2

Yes, we have to ask permission.

Speaker 3

Yes. Yes, they are referenceable account.

Speaker 4

Yes. What was it, Gary?

Speaker 3

They're a referenceable account, but we need to get their approval on the accounts.

Speaker 4

All right. Well, it was pretty exciting seeing those press releases. Hope to see more of them in Rapid succession here.

Speaker 2

As soon as I said to numerous people, numerous times, I don't hold anything back Until I had said earlier, I thought the ink was close So being dry on some of them, but working with these large organizations, everything takes way longer than expected. Some of these things needed 10 signatures and getting 10 signatures, I guess, in a large organization is it takes months, not weeks?

Speaker 4

Yes. Well, it's nice to have no matter how confident you are in the product, There's always that lingering doubt in the back. It's nice to see that first big contract come through kind of Confirming that you're headed down the right path.

Speaker 2

Yes, exactly, exactly. Yes.

Speaker 4

And So yes, very glad to see that. Glad that finally put behind you the big deal there and Looking forward to plenty more. So great job. We'll bring everybody along with you.

Speaker 2

Yes. We're trying. We're trying. Thanks, Brad. Appreciate your support.

Speaker 4

All right.

Operator

Your next question is coming from Joseph Merges with SendGrid Investments.

Speaker 6

Good morning, guys. How are you today?

Speaker 3

Good. Good morning, Joe.

Speaker 6

I just want to tell everybody that the annual meeting was very nice last week and we had a from an investor standpoint, we had 100% increase in the attendance. That's the good news. The bad news, we went from 1 to 2 people out to So I've been to annual meetings where we had a game changing product and it was standing room only. We're not there yet. So maybe possibly down the road that we'll have standing room only at the meeting.

Speaker 6

A couple of quick things. I researched just briefly on your release of the pharma contract, the Merck breach, which was breached a number of years ago. And just to tell us the market know here, the damages on the Merck breach, The insurance companies paid $1,400,000,000 That's how much damage was done by That breach would mark. So just give you an indication of how much some of these OT environments are at risk when that type of a damage ward can be out there. I don't know how do you guys know how The insurance is involved with these companies.

Speaker 6

I mean is there a separate policy for let's say the OT environment as opposed the IT environment for breaches or is this kind of all rolled into 1 or do you not know that?

Speaker 2

I have no idea, Joe. I have no idea how this Yes.

Speaker 6

I'm just saying, when you see that kind of a I mean, when you hit the OT environment, you could take down factories, I mean for extended period of time. And so you could see where the cost could be quite dramatic. So And I don't know how these insurance companies work, but I imagine they are pressuring these companies to either provide better security or the premiums on the policy either there'll be no policy or the premiums will be sky high on that type of work.

Speaker 3

I can tell you Joe that just in our case as a small company, what we had to go just to get our cybersecurity and And in talking to the insurance companies, they're taking a very hard line on it and you need tools such as we have to implement to help because if you don't have any protection, you don't get any insurance. They will give you nothing.

Speaker 6

Well, and that's the guess point I'm trying to make. And of course, we're too early with the AZT Protect rollout to stab, in other words, if you could become almost the best in breed for the OT environment, then there would be demands from either the insurance end or to protect yourself to the best you can. So I'm just hoping that we can get ourselves known well enough that the companies, even the insurance companies begin to recognize the benefits of the AZT Protect product. We'll see how that goes down the road. A couple of things at the annual meeting you mentioned.

Speaker 6

1 was the international your intellectual property. I think you said, Victor, that there was that we have 2 patents awarded. And what do we have 6 or 8 more pending? Is it I'm trying to recall what you said on that.

Speaker 2

6 total, 2 that are already approved, 2 that are in the last waiting stage. So I think the if my memory serves me right, I think it was supposed to be February, March somewhere. It's the waiting stage of just making sure no one has any issues. And then 2 that are in more of the

Speaker 6

Longer term.

Speaker 2

The review process.

Speaker 6

Okay. And I assume almost all of it is tied to the area platform, right?

Speaker 2

It's all the AZT. It's all 6 on. Yes.

Speaker 6

Okay. A couple of things. I did ask you too on R and D, What are we doing? And I think you said we're in beta test now. We're expanding the software to Android Devices out there, is that what you're saying?

Speaker 6

We're testing the Android.

Speaker 2

Yes, it's on the roadmap. Yes, Android is on the roadmap.

Speaker 6

And I think you're adding to even the screen capability where multiple screens can be reviewed by some of these managed service providers at one time. Yes. Okay.

Speaker 2

It's on the road map. Yes, it's on the road map. We're still in development.

Speaker 6

I don't think a lot of people out there realize that When you introduced AZT Protect in July, we weren't on version 1. We were on multiple versions. We had gone through multiple versions before we came out with that. So it wasn't like it was the first version that came out there. And since then, of course, you added the Linux, Right.

Speaker 6

I know what version. Do you know what version we are now on the AZT Protect products? I mean, we must be 6 or 7.

Speaker 2

Yes. No, I think we're in like 13. Really? Yes.

Speaker 6

Yes. Well, again, sometimes most people come out with the phrase, it's 1.0, but we're not there. So we've advanced this over the number of years pretty extensively.

Speaker 2

Yes. I think I had mentioned before that our original goal was to get a version out and then add a lot of the functionality and the bells and whistles as we moved along. But through one of our large Customers that we've talked about, they needed all the functionality immediately before they were willing to sign off on it. And that's kind of why it took a lot longer for the development in truly the first release that was available to sell was in this past July?

Speaker 6

Well, so the end result was a more robust product as we finally came out with it. And I'm assuming that what we built can be utilized almost across the board on any industry like he said. Okay. One thing on this major reseller agreement you just signed a contract. Is that one Was that you talked the last time about 2 major system integrators.

Speaker 6

Was this The contract that was just signed, 1 of the 2? Or is this a separate group altogether?

Speaker 2

No, it's a separate group.

Speaker 6

So we're talking about others major integrators that we haven't I think you got 2 the last time. Is this now 3 or?

Speaker 2

Yes. We're I think about half a dozen of, I would say, decent sized In the grades, there's a couple that are real. This is annual sales in the billions.

Speaker 6

And just a quick point on this. When you signed a contract, what's different with the contract versus what you're talking to the others? I mean, is there any Performance requirements in the contract for the reseller? Or is it just a contract that Any one of them could have signed a contract

Speaker 4

of the number you're talking about?

Speaker 2

Well, let's face it, anybody can sign it, but some of these larger ones because they're quoted by every product out there, they only bring on new products where they believe, A, there's a gap, and then of course, 2, that there's a big There's a certain amount of revenue they can get from a product line, Right. It's not one time sales is something that they're not looking for. So it took, I would say at least 6 months to go through the process with them, of them looking at the product and then also Bringing our product into some of their customers and talking about it, and getting feedback and looking at a real need That's out in their customers' environments and that's kind of what brought it over The finish line to get the contract signed was that they believe there's enough for their customers that can look at this product. They're not guaranteeing anything of course. But if there's truly a need and a gap and we are talking, I would say, at least half a dozen of their customers already in different stages.

Speaker 2

So we're hoping they have a lot of customers. I think that the target that we looked at is somewhere over 500 potential customers that we can at least talk to that may have a need of some sort for AZT.

Speaker 6

Okay. Well, that's great. I mean, it's a huge market to expand. Yes. Just one other point and you brought this at the annual meeting.

Speaker 6

You talked about that you get you often get calls down there in the TS group For people that are after or looking to buy into either the TS Group or buy into our managed services, in other words offering You want to buy your online and service offerings. Has any of those talks ever reached A dollar or have we just not advanced those talks at all? We're not interested.

Speaker 2

No, we're just concentrating on building the business.

Speaker 6

Okay. But you have fewer calls People want to know if we're even in the market to sell it, is what you're saying?

Speaker 2

Yes. It's a lot of emails And there's a few people that actually catch me picking up the phone that I have conversations with. But right now, it's just about building that monthly recurring revenue.

Speaker 6

Yes. The talks have never progressed, as you're saying, other than just a pure interest to people are they're floating in some questions out there to see if we're interested at all. All right. Well, thanks a lot. I appreciate it.

Speaker 6

It seems like we're Just a matter of time to get some of these big numbers across the board for AZT. Thanks guys.

Speaker 2

Thanks, Joe. Thanks, Joe.

Operator

Your next question for today is coming from Will Blobber with Visionary Wealth Advisors.

Speaker 7

Hi. There's been some confusion on our end, How the ADT product is being priced, is that a monthly recurring subscription or

Speaker 2

Yes. Moving forward with the customers, it is a monthly recurring. Gary had mentioned that this one is upfront and we made an agreement with the pharmaceutical organization just because they test it for 18 months that they could purchase it upfront as a one time fee with yearly maintenance after that. But moving forward, it will be more of like a CrowdStrike model where it's a monthly recurring.

Speaker 7

Okay. And is that priced by site or end point? Per user. Yes.

Speaker 2

Per endpoint, I should say, which it's we're in the we're not truly end user As laptops were in the server as the endpoint because we're protecting the application. So if there's a server with 10 VMs, it would be basically 11 licenses for that. And if you had a 1,000 servers, you do the math

Speaker 6

Okay.

Speaker 7

And I guess one of the Things that I had noticed in this latest release compared to some of the early ones, I guess, in particular that Fortune 500 Chemical Company, I think that was just for one site. Does this Pharmasoo companies, does that include like all their manufacturing sites? Or is there still some that could be come on later?

Speaker 2

Yes. This is I'm hoping it's just the first phase, no guarantee, but once we roll these out, then we'll see what's next.

Speaker 7

Okay. And then, with that full manufacturing company, how are things going with that? Or is Does that have to be is that each plant manager that has to make the decision to add that or how is that?

Speaker 2

On which company is that?

Speaker 7

The chemical company?

Speaker 2

Yes. Unfortunately, we have to deal with each and every location separately Where the pharmaceutical, this is being pushed out from a corporate level. It's a little easier here for us to deal with this rollout than the other one. So it's been challenging, but it's a process.

Speaker 7

And so it's in one facility now. What's the potential with that customer? How many facilities?

Speaker 2

I want to say there's 80 sites.

Speaker 7

Okay. All right. And have you guys been seeing any increased interest From that SEC rule about cybersecurity or how is that kind of playing out?

Speaker 2

We're using as a sales. It's out there and we're talking about every time we talk about it, it's one of our selling points, not only the protection, but what could happen if you don't.

Speaker 7

Okay. Well, thank you very much.

Speaker 2

Thanks. You're welcome. Have a good one.

Operator

Your next question is coming from Mike Price, a shareholder.

Speaker 8

Good morning. Thanks for taking my questions. I appreciate the press releases, but they're pretty vague. All of them have said multimillion dollar and there's no way for us to evaluate what the impact is going to be to revenues. And you said that you could use the buyer of the ACT as a reference in trying to secure new buyers.

Speaker 8

But what about publicly disseminating who a buyer is? It seems like it's in everybody's best interest with their permission. It gives credibility to CSPI. And for the customer, it seems like putting up a sign in front of your house saying, I'm protected by this security and that's almost a deterrent.

Speaker 2

It works opposite. If they know what it is, then they could potentially know like what to do and how to hack. 2, we don't have permission. It's right in the contract. We cannot use their name.

Speaker 2

That was part of the terms and conditions. 2, we can use it on, as I said, a permission basis. Basically, calling customer up saying, I have this customer, They would like to talk to you. They would like to have a reference. Are you willing to speak with them?

Speaker 2

And if they say yes, then we can set up the call and then we can move forward. So anytime I can use someone's name legally, I would do it. If I didn't, it's for a reason.

Speaker 8

Okay. On the last conference call, you said you were in discussions with 50 potential buyers of ACT. Can you give us an update on that?

Speaker 2

Yes, some have progressed. There's some that are moving Again, I don't want to say it again because then after I got you guys driving me crazy on exactly, we're talking contracts, but when that is, I have no idea. But yes, they're all progressing, some fell off, some of them said, we'd love it, we don't have budget for 6 months. It's a normal sales game. But some fall off, some come in And we're setting the shows did well for us.

Speaker 2

We have multiple POCs that came from the shows where they have the product, they're testing it. And after the testing, Then we'll see how long it takes to close the deal, but there are some progressing on that. So we have a couple more shows coming up in March, which as they come up and they're we believe that it's the right audience, we'll be attending them.

Speaker 8

Okay. And if a reseller actually places sells AZT, is this something that you'll disseminate to the same as you have when you sell it yourself?

Speaker 2

Correct. Correct. Yes, exactly.

Speaker 8

Okay. And I asked this question each of the last two conference calls about Buying stock, did you buy back any stock last quarter?

Speaker 2

No. No, the company did not. I personally bought some stock again last quarter.

Speaker 8

Yes. I saw you bought it was down $5 couldn't have been better timing. And again, we have the same issue today with the stock down almost $3 And down more earlier and with the roadway that you paint for us, it still seems like a good use of The shareholders' cash appreciate the increase in dividend, but it seems like a good use of cash going forward. It seems like there's quite the runway here. One final question.

Speaker 8

Any thoughts about changing the name of the company? I mean, the company is definitely going Towards cybersecurity, ARIA cybersecurity?

Speaker 2

That's why we have our RES cybersecurity under the umbrella of CSPI because we still have the other business, The TS business. Okay.

Speaker 8

Okay. Appreciate it. Thank you very much.

Speaker 2

Yes.

Operator

Your next question for today is coming from Sergio Huber with Huber Research.

Speaker 5

Good morning, guys, and congratulations on the progress that you're making. I'm wondering about I understand that you can't disclose The customer without the customer's permission, but why can't you disclose the amount of the contracts?

Speaker 2

Because we normally we don't give we've never have given exact amounts of contracts And what they argue we'll disclose it next quarter when we actually recognize

Speaker 5

it. It's difficult for investors to put a price on the stock without knowing how much the contracts are. And that's why I asked and you're not giving any guidance. Are there plans to provide guidance in the future?

Speaker 2

Potentially, but not right now.

Speaker 5

Is the reason that you're not giving out the amount of the contracts Because of competition, not to give away to the competition what the product sells for?

Speaker 2

That's part of it, yes.

Speaker 5

Okay. And then I have a Question from a reader from a Seeking Alpha article and I figured I'll pose it to you. I don't know how to answer this question and I don't know if it's a fair question. But the companies and the enterprises that you're selling the ACT product are large entities that have their own department, why would they be customers of you instead of developing the product for their IT?

Speaker 2

They want to develop a security product through their own IT? Okay. That's possible. I guess, so enough money, time and expertise, anybody could potentially do it. But if he's asking If they have their own IT department or someone who doesn't have their own security department, could we help manage that for them?

Speaker 2

The answer is yes. But whether you have your own IT department or not, you still need some type of product to do the inspection and the protection and the detection and everything else that goes along with that. But Yes, I'm a little confused on what he's asking.

Speaker 5

Well, Guy couldn't answer the question either. And it came from more than one person. Basically, I don't think that the average person, including me, understands The complexity of security and there's so many products out there and we're trying to figure out how do we know that There is nothing else like this product and that how disruptive it is. How can we judge that if without I've asked experts in the field, then they can't answer the question. And I think investors are trying to figure that out.

Speaker 2

So I think I've mentioned on calls, it's a crowded space, right? Everybody knows the big boys, right? The Palo Alto, you name it, right? Then there's the 2nd tier, which I don't know exactly the number, but a couple of years there was over 2,000 other security companies of all sizes. So of course, it's a crowded space.

Speaker 2

How do you separate yourselves? That's a challenge that we have to deal with every day. So Winning this contract, right, that's going to be our biggest selling tool because when you looked at the company we sold to, They tested everything. They have the resources. God knows it took us over 18 months to close this deal.

Speaker 2

So they had the option and everybody out there security wise was knocking on their door. So they had the option to look at many, many products. And for them to choose our product after the literally over year testing, that's kind of how we believe Our product does fit a need. It's not just from of course, Some of the people on the phone have heard this, we think our baby is beautiful, but it may not be. But having these customers test the product, look at it And it fills a need, especially with the later XP Windows, the older versions.

Speaker 2

All these other companies are really not supporting The old version of the Linux and Windows. So not only we can do the current ones, but we can go all the way back. And as I suggest everybody who is on the call go back to the webinar that we did. It really breaks down the value of the product, why we're different and how we complement other existing products, right? I think Jim Labonte mentioned On the webinar, if you look at like Clarity or CrowdStrike, they have It's then necessary, but there's a void and we can fill that void.

Speaker 2

Now you can use us exclusively if you want, that's beautiful and we'll take it or we can complement the existing products that are out there to fill a gap, right? There's some products that they'll detect, but they won't prevent. And that's kind of where we step in and we do 0 day attack on 0 day, not, oh my God, I got to go patch it, give me a week or 2 days or 5 days or 6 months to go patch it. So our biggest issue is we need to get the message out and we're doing everything we possibly can to talk to as many customers and to evangelize that message. Give us a chance to show our product, do a POC, beat it up and let us show you the performance of the product.

Speaker 5

Thank you for taking. I think you guys are making great progress considering the product hasn't been on a year yet. So when will we start seeing revenue from

Speaker 2

ACC? Next quarter.

Speaker 5

And is that the pharmaceutical contract?

Speaker 2

Yes, yes. And we're hoping that there'll be other customers, yes, that will fall into place. But this like 2 months like I told you, you're going to hit A big bang from the pharmaceutical because the way we sold it to them is that one time deal. And then all the other customers, We want to sell them as a monthly recurring revenue to build up that model.

Speaker 5

Excellent. And will there be upfront fees on the recurring revenue?

Speaker 2

Well, It just depends. If they want us to do the install, then we're going to charge professional services for that. And then you'll do a monthly fee and per endpoint and that will include the maintenance in that monthly fee too. So they'll get all the latest and greatest updates that we have.

Speaker 5

All right, guys. Thank you, Gary and Victor, and continued success.

Speaker 3

Thank you.

Speaker 2

Have a great day. Thanks.

Speaker 9

Yes.

Operator

We have time for 2 more questionnaires. Your next question is coming from Paul Schilardi, a Private Investor.

Speaker 10

How are you doing gentlemen? Awesome job on the Order on some job with the press releases. I want to start off by saying that.

Speaker 7

Thank you.

Speaker 2

Can

Speaker 6

you hear me?

Speaker 2

Yes, I can hear you perfectly.

Speaker 10

Yes. I kind of feel bad that you have to deal with these rookie questions from shareholders because it's common knowledge that Smaller companies cannot release either the name of larger company deals or the amounts for strategic reasons. But I as a shareholder and most shareholders appreciate that you're still getting a great flow of press releases once you get these deals to keep the street informed. So I'd say great job with the press releases. And also if the prior caller would have listened to that awesome webinar with the ex Pfizer executive, he said the differentiation of the AZT product out in the marketplace.

Speaker 10

That webinar was awesome information. So I think First, some of the shareholders, you need to do a little more research before you waste the executive time with these questions. Now for a few questions, and I'll be brief because you guys did an awesome job. We're seeing on a macro level in recent weeks, headlines coming out about China, Iran, Russia that they're going to attack infrastructure. We saw in recent months that water infrastructure in the United States was actually attacked.

Speaker 10

This seems to be brewing as an emerging scary theme that one, doesn't this place even more massive importance imminence on the AZT product. And are those type of headlines, Do you see them as being A, as obviously a selling point and do you think they're going to raise awareness for these companies to start seeking to protect their OT environment?

Speaker 2

I would think so. Joe actually, it was Joe Nourges, every morning I get the latest and greatest releases of every breach that happens, at like 4 am, he sends them out to me. And we use that, right? I forwarded to the sales force. How people say we don't have budget for the security when they know they have a gap, I have no idea.

Speaker 2

I literally on every sales call if that comes up, I'm like, I just don't believe it because getting hacked is only a matter of time, right? It's not if you're ever going to, it's some way, somehow, somebody will get some type of hack inside the organization. I don't know 3 years from now, 2 years, but it's going to happen of all size companies. So how people are not making security their number one priority. And the thing is like good enough is not the right answer, right?

Speaker 2

Because it only takes one access point inside the network or the infrastructure and then they're in. So saying I'm 90% protected is not the right answer for these organizations. So how this doesn't just fly off the shelf, I'm not sure because I believe we're doing a really good job separating ourselves from the rest of the group out there. But it's still CSPI, who are we and we're trying to like I said, we're trying to do the shows, we're trying to do the webinars, we're trying to in front of the many customers, we're trying to bring on resellers and then let the product speak for itself. That's what we try to position.

Speaker 2

You can listen to us all day long. Let us do a POC. Let's run the product in your environment and let the product talk speak for itself. And We've never got bad feedback from any customer that's taken the time to look at it.

Speaker 10

Right. No, 100% and in many ways like according to the damage of the hack, the product pays for itself if you think about how much it's going to cost to get hacked. And I think really what we need is to get you on CNBC or some or Fox News Business News when they have all these scary headlines that say AZT as the solution and hopefully maybe we'll see that soon. Next, like we talked about mandates and we know there's a SEC reporting mandate. I think Australia has a mandate.

Speaker 10

Does the U. S. And other countries have these growing mandates to have this OT protection, and is that kind of you see something that's going to drive more awareness to AZT, the mandates themselves? Are you seeing that? Are people saying, hey, we got to get this in place, whether it be the U.

Speaker 10

S. Or other countries?

Speaker 2

People are talking about it. If they're not, we're bringing it up, right? Like I had mentioned earlier, we're using that as one of our key selling points. Like It's not going to be a choice any longer, right? You're going to have to do this.

Speaker 2

And it all becomes about just Getting time in front of the customers. Once you have some time with them, you can peel back the cover and you can to see where their need is and then it's our job just to sell it to them and show them the value. But yes, I believe the mandates they can hurt, Right. They can only help. Right.

Speaker 10

Yes. Okay. And then also we talked about last call about cybersecurity company partners potentially and talking to them and we know that in there is a press release showing that NVIDIA is a current partner. Now I know companies like NVIDIA are very secretive, and you might not be able to tell me anything about it, but it is public info that they are a partner. Are they partnering on the AZT side?

Speaker 10

And are you still in talks with other big cybersecurity players to potentially sell this for you since it doesn't compete and it could just be an add on product to like a Palo Alto's offering?

Speaker 2

Yes and yes. We are still talking to NVIDIA heavily weekly, and we are still talking to other major players out there to partner with them to make our offering as a selling as a bundle product.

Speaker 10

Awesome. That's great. Thank you for that. And lastly, My last quick point is you guys are doing an amazing job on executing both you and Gary and the whole company. We want that as shareholders.

Speaker 10

But it would be nice when CNBC and everybody is talking about these cyber threats for operational technology, if we could get You on CNBC. So have you thought about hiring like an investor relations, public relations firm since one of our biggest this is like the like I feel like Super Bowl just happened. CSTI is at the Super Bowl, but nobody knows they're playing in it yet. So have you thought about hiring an IR PR firm, So while you guys are busy executing, somebody can help get this story out from a marketing shareholder perspective, which is also It's not the most important thing. Execution is more important, but it's part of the equation.

Speaker 2

Yes. We are talking about it and We're there's a game plan. So,

Speaker 10

okay. No, that's good. As long as you guys are it's on your plate and you're thinking about it, I just want to say, because I was more intense last quarter, you guys have done an awesome job. Appreciate the press releases, keep them flowing. And to me, this is like a generational opportunity.

Speaker 10

And with the headlines, the scary macro headlines we're seeing, this is like a much needed product for so many companies and government. So thank you guys and great job.

Speaker 2

Thank you, Paul. Have a good day.

Speaker 3

Bye.

Operator

Your final question for today is coming from John Crotty, a Private Investor.

Speaker 9

Hey, good morning, guys. How are you doing? Good morning. Good. Just want to say congratulations on a great quarter.

Speaker 9

You guys actually accomplished everything you said you're going to do the last quarter. Some of it not have been as timely like the ink grind, but you did it. So that's actually a big kudos to see management actually do what they say they're going to do. And The other thing is there's a great information on this, Cece, and every retail investor should listen to this. Most importantly, when Joe mentioned a $1,400,000,000 cost to Merck.

Speaker 9

I mean, those are amazing numbers. You think everyone would realize when their insurance Company won't cover it, they should be calling you guys. I mean, but anyway, here are my questions. So we know and I anticipate your phone to be ringing off the hook, But I know you have a lot of resellers. Like we saw you guys with a deal down in Florida in a pre existing MSP customer.

Speaker 9

Any feedback from any of your resellers, especially the large one in Australia, and they do have a mandate as well. And just about the other like 50 smaller partners you have regarding these large ones, any feedback? Are you assisting them? Are they needing any assistance?

Speaker 2

Well, there's 2 separations, right? So the reseller, The TS division is the one that sold the MSP contract, right? So that's all part of the TSPI umbrella. And then you have all the other resellers that we under the ARIA division, the HPP division. So those resellers are the ones that we're targeting with AZT And those are the new contracts that we signed with the large reseller and it's about training them, doing marketing events with them.

Speaker 2

So those are the things that we're doing with those types of resellers. But there's it's really no one's Really put 2 and 2 together or ask us any questions about the MSP contract or anything else we won. That's why we separated the 2. So All the information that we're dealing with the IRS stays separate. So those resellers feel comfortable that all their information is private.

Speaker 9

Okay. So that you're doing that on behalf of the pre existing partnership side of the deal. What about like the Logitech that's been strictly an AZT reseller over in Australia? And again, they have a mandate. Just wondering what they're seeing and saying maybe equivalent to you?

Speaker 2

Yes. He's coming he deals with a lot of government entities out there in Australia. So as you know, things work slow, but it's about getting in front of them with the POCs and then he does the rest of the work. We educated him. We trading him.

Speaker 2

He has a lab. Everything that he needs to be successful, he has. And now it's about him just working the relationships and the opportunities that he finds out in Australia.

Speaker 9

Okay. And my last question has to do with the type of product company mix you're seeing with your leads. Are they more government? Are they more infrastructure like electrical, oil and gas? Or are they more like manufacturing like you just recently won or higher ready then?

Speaker 2

Oil and Gas is definitely a segment that we're talking to quite a few people. The pharmaceutical area, medical, those are probably the 3 top ones that we're talking to right now.

Speaker 9

Okay. Fair enough. Okay. No, that was it. Just kind of get a good mix.

Speaker 9

Hi, guys. Thank you so much and look forward to next quarter and attending the meeting as well.

Speaker 2

Thank you. We

Operator

have reached the end of the question and answer session. And I will now turn the call over to Victor for closing remarks.

Speaker 2

Thank you. As always, I want to thank our shareholders for your continued interest and support. We are entering a period of increased activity and we look forward to sharing our progress on the next fiscal 2024 Q2 in May. Until then, be well and stay safe.

Speaker 3

Thank you.

Operator

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
CSP Q1 2024
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