Q3 2020 CSP Inc Earnings Call
Good day, everyone and welcome T.D.C.P. fiscal 2023rd quarter Conference call.
All participants are in listen only mode. Later, you will have the opportunity to <unk> question.
Please note that this call is being recorded and now it is my pleasure to turn the conference over to Mr.. Doug can you see group. Please go ahead Sir.
Thank you operator, Hello, everyone and thank you for joining us to refuse CSP Inc.'s fiscal third quarter ended.
June Thirtyth 2020 would be on the call today's Victoza Global <unk>, Chief Executive Officer, and Gary line, CSP Ice Chief Financial Officer, After Victor and Gary conclude their opening remarks, we'll then open the call for questions.
That's made by CSP thinks minutes on todays call regarding the company's business that are not historical pack maybe forward looking statements as the terms identified in federal Securities laws. The words, Nate will expect believe anticipate project plan intend estimate and continue as well or similar expressions are intended.
Identify forward looking statements.
Looking statements should not be whereas the guarantee of future performance or results. The company cautions you that these statements reflect current expectations about the company's future performance food bands and are subject to a number of uncertainties risks and other influences many of which are beyond the company's control and they influence the accuracy other statements and projections.
On which the segment statements are based.
Baucus amazed that the company's results include but not limited to the risks and uncertainties discussed in the this backers sections of the annual report on form 10-K, and the quarterly report on form 10-Q filed with the Securities and Exchange Commission forward looking statements are based on the information available at the time those states amazed management's good faith belief as all the time, but.
Back to the future. That's all forward looking statements are qualified in their entirety by this cautionary statement and C.S.P. any undertakes no obligation to publish revise or update any forward looking statements, which as a result, due information future events or otherwise after that they excuse me whether as a result of new information system.
As events or otherwise after the date there.
With that I'll turn the call over the Victor Dellovo Chief Executive Officer.
Thank you and good morning, everyone before we begin I want to acknowledge the impact of the krona virus pandemic, an express a hostile concerned to those have been affected.
Since we last talked with you in May our team has continued to adjust how we operate the business to maximize our opportunities in a manner that it's safe to both our employees and our customers.
I've been able to maintain most about workforce executing for our clients in more than 90% or the team is working remotely.
We announced several months since the new normal and despite limiting our ability to visit our customers potential customers. We continue to build a pipeline in all lines of our business.
Total revenue for the fiscal third quarter was 13.5 million compared to 21 point Sixmillion, we reported in the same period fiscal 2019.
Yeah.
Yeah revenue decline was primarily relates to cope with 19 pandemic. Our decision to also transition I business to a high margin products and services enabled us to significantly improve our gross margin.
I believe this achievement demonstrates the soundness of our execution of our profitable growth plan.
Further during this transition I prospects remain quite high and if nothing else the site suddenness of the covert 19 pandemic an unprecedented.
Oh remote working environment is helping to highlight network vulnerabilities.
Businesses, both large and small remain exposed to increase threats in there have been several well publicized ransomware attacks.
I believe this fear in addition to providing secure remote work working environment is a growing concern for many businesses.
It's critical that the businesses have a partner that understands a complex challenge challenges, we are positioning CSPI to be that partner as I newer solutions area in our unified communication as a service or ucas.
Seem ready ready made what today's critical network issues.
For the quarter, our technology solution or T S.
Oh T.S. revenue was 11.9 million, while the TS Division was impacted by Koby 19 were able to generate most of our revenue from a large customers.
Managed service practice, our MSP continues to perform well as we signed new customers during the quarter, which include cloud business and you can.
Importantly, we have down losses single customer as they value. The service we are providing this sticking this demonstrates our importance to our customers even during these unprecedented times.
I believe that the three lines of recurring revenue business, we create it continues to bring stability to CSPI.
Separately the cruise ship industry remains one of the most koby 19 impacted industries, but we spoke in May many operators were looking to resume crews during the summer months. However in June the cruise lines International Association or C O I announced that the association.
Dosing going crews I'm members will voluntary extend the suspension of the cruise operations from the U.S. ports until mid September 2020.
However, as some cruise operators have.
No plans to restart in the U. ports and he coming weeks.
While the continue travel restrictions hampered the ability to gain access to the ships that we continue to communicate with the opportunities every other week and we are prepared to move on a moment's notice.
On the positive side these upgrades need to occur.
Operators have already purchased equipment. So we would expect these ships to be prioritize wouldn't business resumes as we have consistently reported over the past few quarters I'm. Microsoft practice continues to perform well in this late this quarter was no exception we are in a month through Q4, so I'm reaffirming.
I believe that we will achieve a greater growth rate for the business compared to a full year growth rate of 140% we achieved in 2019.
Regarding our ucas offering in all the one service for hard and soft phones, including 24 by seven security in technical support with the redundant data centers, both in Florida and Texas.
As I [noise].
A reminder, ucas market size is expected to grow from 15.8 billion in 2019 to 24.8 billion by 2024 being driven by growing trends towards mobility in bring your own device, a b Y O D to the workplace.
During the quarter, we continue to have success as we added new customers and expanded sites at a current customers all while continue to increase the number of virtual product demonstrations. We are performing on a weekly basis. The new business pipeline is promising in a team has engaged with prospects and is maintaining constant communication.
Yeah.
Now I will move to a high performance products or HBP Division revenue for the quarter was 1.6 million in line with our estimate reflects revenue from our legacy business being offset by the expected decline the American business ARIA Our award winning next generation Cyber security platform that helps organization protect themselves from.
Hospital hit in attacks without human intervention is continuing to Gardner tremendous interest in customer success as we recently.
Completed installation for an international customer further we continue to be well positioned within a leading cable company and other Oems opportunities for area I believe the testimony along with the industry acknowledgment and robust lead flow. We are generating from virtual trade shows will drive future sales in HBP device.
Additionally, we are now have six partners for our official channel program and we are speaking with several of us to ensure a robust channel program.
To summarize the CSP I team is performing well and remain focused during the Unprecedent times. We have made made and we'll continue to make necessary adjustments to our operations to ensure business execution, specifically I knew ARIA and ucas offerings are generating the expected interest as we sign up new customers in broadening our pipeline.
We have a.
Diverse customer base, both largest small and this breadth will allow us to successfully navigate the near term uncertain.
We are excited about our long term growth prospects with that I will now ask Gary to provide a brief overview on the fiscal third quarter financial performance.
Thanks, Victor as Victor mentioned in his opening remarks, our third quarter revenues were $13.5 million compared to 21.6 million in a year ago third quarter and reflects our pursuit of higher margin business.
We reported gross profits at 4.2 million compared to last years third quarter.
Rocket $4.8 million, resulting in a gross profit of 31.2% compared to the year ago gross profit of 22.4 and improvement of 9%.
Our engineering and development expenses for the third quarter was 693000 compared to 583000 in a year ago corridor.
In the prior year corridor, we received a refund of $150000 from consulting cost for a project that wasn't completed.
Our SGN expenses in the quarter were $3.9 million slightly decreased from $4.1 million in last year's fiscal Q3, due to a decreases variable compensation costs.
We repeated we reported a loss before income of $200000 in Q3 compared to income before income taxes of 206000 in the prior year third quarter.
During the quarter, we had income tax expenses $10000. The prior year quarter had a tax benefit a $326000.
In early April when it became evident that the covert 19 would have a severe economic impact we took several actions to improve our cash flow, including this event the suspension of our quarterly dividend.
Stopped our stock buyback program and applied for and received a P.P. Piedmont.
These actions at the end of this June strengthened our cash position by approximately $3 million.
We ended the third quarter with cash and short term investments and $20 million, which includes cash of tenure in the UK and have a pension liability of $5.2 million.
Our actions are designed to ensure that we continue to drive our bottom line performance and boost sales of our higher margin products.
With that I will turn it over to the operator to take your questions.
Thank you and at that time, if he would like to ask a question. Please press Star then one on your Touchstone, Oh, Hey, withdraw your question.
Uh-huh once again, I didnt start and why.
And we'll take our first question from doses nurses with.
And investments. Please go ahead.
Good morning, good on how are you today.
Yeah.
Just a couple of quick question from the last conference call we were talking about.
Proof of concept demos that you were leased attempting to do well with the customers on the area a product line.
What's the status of that have we've been able to get access at all to some of these customer site.
Yeah Joe.
Not yet.
Not yet.
We have a backlog of.
We should have a backlog of a proof of concept demo out there I assume that we've been.
Oh, Hi, we've been doing.
Actual was and we've been trying to do you feel like I try and buy where they actually you know give us a purchase or stuff like that that's what we're offering you know.
They wanted to see if they want it you know they want to see more work, yeah, exactly and we haven't been able to get onsite most of our customers. So have you know unless you work there you're not allowed to be on those facilities, okay, but.
Wow.
And the last conference call you were saying you were doing you were doing demos, uh-huh, like whom you're able to do some sort of a demo absent the proof of concept when doing demos, we're doing three to five demos a week.
Insistently.
But getting it to the next level of the proof of concept is what's kind of slowing things down at this stage, okay, and so I may have to assume that the last three months that quite a few a virtual demos. If you want to call it that <unk> on that and as a matter of getting and <unk> and so we have.
I've been able to get the most customer sites at all is that what you're saying.
Okay.
On the are you caf offering I see it you Weve signed a couple of customers like what you <unk>.
Have we I'm most of the customers that were getting yards I take it are they taking a standard price or we do modifications like you had indicated some conference calls to go.
Yeah, we are we might have finally, the customer specifications the Cisco.
Always say 50 50, Joe Okay.
And I guess my question is are we are we competitors.
Versus let's say the Ringcentral Oh, the world because they're rocker doing the same thing right quite pretty much where is that physical product line.
With a platform that we're utilizing a very competitive in the market.
I always say Joe if you go look on is like three buckets, I'd say sell into like a higher end.
You know why where you get the Webex and everything that goes along with that and then there's a middle the to middle tiers with very competitive bomber not a problem. If it's just a ring tone, it's probably not our you know bagga you know that did not customers that we were really interested in you know, they're trying to do like $4 a month or something.
Thank you very inexpensive per user that's not where we're trying to.
Go after.
Okay and.
So you did indicate again that we still are in contact with the cable company I'm, assuming we haven't been able to do much because of that whole. Conversely, a lot of a lot of communications just things have been.
Is it just slowing down yeah. We do have you know if not weekly every other week conversations you know what things got pushed out a few months.
Due to their uncertainty of how they want to move forward.
Okay and one other thing on the where we're finally with technology solutions are.
Finally, offering are vital MDR advantage with incorporate area platform and I'm just wondering you know [noise].
This is a perfect platform there.
Obviously for any the managed security service provider have we been able to garner Edgar and that.
Uh Huh technology solution group.
Well the technology solution here is offering it part of the managed service now.
So that has been you know integrated in the Salesforce is working diligently you know to provide opportunities for that and then we also talking to other.
M.S. piece on the area.
Side that that discussing direct that they may want to use our platform as their you know Sim.
But I'm, assuming the same problem.
Exists with technology solutions group that is that as they don't have that they can't get access that a customer site either right. If they're interested in following through on with this platform.
Exactly.
Okay.
We just have some stronger long term relationships that we could tie that you know trying we're trying to push him to to you know yeah, just say hey believe in US you know you Trust US for last 10 years. You know we know this is going to work. So those are the conversations that we're trying to push on the the tier side, a little bit faster and you know then we would normally on a brand new.
Cost of our that May not know.
You know CSPI or ARIA.
Okay.
How about and any <unk> to be royalty.
In this particular quarter or expected to the next quarter.
There will be or some of current couldn't this current quarter, Joe we're gonna have.
Royalties and he had a few in the last quarter going into next year with we just have to see how they fall out because what's happened over the last few years is they don't get the products out in it trickles into the first quarter. The next fiscal year. So we'll just have to see how they they roll out when they build the board.
So basically we had a little bit this quarter, you're saying the current quarter, we get going in that yeah Q3, yes. It was and we are expecting a little bit more fourth quarter.
Correct.
<unk>.
And then and we just don't know how it's going to fall next year.
Correct, what we know we're gonna have royalties, we just don't know the timetable for the royalties.
Okay.
Very good that's about all I have R&D expenses, you said around 693000 for the quarter. So again, we would've been you know obviously.
Absent that R&D, we would've been profitable.
<unk> <unk>.
Alright. Thank you very much appreciate it guys. Thanks Joe.
Hopefully we can.
Yes, who oversees pandemic and move forward with that we're certainly somebody who offering.
Thanks, a lot there. Thank you thanks bye.
And well take our next question from Jonathan Hernia with compound partners. Please go ahead.
General and good morning, good morning.
Okay. Thank you for doing what you're doing you know I represent an individual and group, which is Ah I believe the largest shareholder in the company and.
Streaming bullish about what you're doing.
LNG is there the innovation is there the management is there.
And the story is it and and then we believe the valuation to be really compelling Oh, you know, especially when compared to so many names and in your group you know how can how can we how can the story be best put out to let people know.
What's the potential is here, especially given the market could you speak to the size of the market for C.S.P.I. and you know how we can kind of help people understand that this isn't a sleepy value opportunity. This is a growth company in the cyber security space that is trading at a massive discount in my.
Yes.
Yeah.
Well I think that a there's there's a few things that were doing behind the scenes. We've got a new IR firm that we acquired and working with them. So there were trying to get in front of a more potential shareholders to get our message out we're also continuing to.
At least trying to put the word out about the product itself, we're still competing and certain issues. So that we get notified I mean noticed by.
Ah different people in the media I'm trying to get more there as well as would be very proactive on them.
No. It you could get a people there from the customer Steve.
But we really have to look at getting our message out more and more we think you're correct and move.
And no Victor is.
Trying to get more things going on in the I'm fine Yeah, and you know I completely agree with you in a in the segment that you know what competing with.
So some of the competitors you know they've been doing it you know maybe a little longer than we have but if you really look at the technology you know they do piece points, where you know we feel that we're covering you know 70% to 80% of the overall security you know we can cover with both the ARIA products that that we currently have.
So you know I, we I definitely think we're on the values you know we need a few more customers to build up a little bit more of a reputation that you know you could go to some of the you know the players that covered guys into forresters and and try to get them you know to cover it but you know I put our product against any of the you know.
The other products that are out there that you see on you know national TV commercials and stuff like that that are out there, but you know they've been doing today, a little bit longer and.
Oh definitely a lot bigger you know this at this stage, so but compared to you know on product wise I definitely put us against their product any day.
Okay. Thank you Victoria ticket for the relationships and I know, you're building and I want to dominate the call, but I'll ask very briefly to can you speak a little bit today, I think 60 as Piazza undervalued small cap that has relationships with some of the largest large cap can you briefly speak to a couple of the company's that you're working with.
That you hope to work with that.
You know are among the well known it most well known in their spaces.
I can tell you where in the financial institutions, you know I, rather not specifically mentioned the customers. You know names that are out there permission, but where is the largest still watch you know our financial institutions that you know we currently talked to in the verticals are all over you know banking and health care as a two verticals we.
Really started focusing on you know I think and even in this pandemic type of environment. You know they do have money that they have to.
To spend in security you know to protect you know whether its clients informations, both on the financial or on the you know Hippo and in health care. So those are two verticals that we've concentrated on and you know we're talking to like I said, you know the largest cable companies that are out there also that we're talking to right. Now. So you know of course is always comp.
Petition, but I think once we were able to to get the product in there and show how it works well have a you know a good chance of earning their business.
That's awesome I mean, three before the pandemic interestingly I see has created very closely with it cyber security E. Yes.
It is recovered quite dramatically.
S.P., obviously to a lesser extent, so I'm bullish and we really believe what you're doing and you know.
That's why we think the company's undervalued and continue to hold thank you again.
Thanks for your support.
Oh, yes, as a reminder, that it start and one for your questions today.
Anyone.
Well go next 10, Brett Davidson private Investor. Please go ahead.
Hi, guys I Oh right.
Following up to Joe here, Joe had some fast questions I got some slow one.
[laughter], though.
So so you guys made reference victory and your comments you made reference to her growth and I Didnt catch all of it I was wondering if you could just just touch on that again.
In relation to to the prior year.
Yeah, I wasn't sure if it works, where we're going to end up this year.
Oh I was saying the growth was just on the Microsoft piece of it. The officers 65, we had a good growth rate on the I cloud business, that's what I was referring to.
Got it right or there was a new customer installation you had mentioned.
Mhm and.
I'm, a believer was that the ucas and.
Did that revenue is there any of that drop in the last quarter is or is that all going well.
Well, we've had we've had new customers in both Ucas M.S.P. over the quarter. We also had you know the installation of the ARIA product. It was an international customer that was installed and it wasn't you know lodge, but we did book it you know last quarter. So.
[noise] and and the Ucas.
I mean was that throughout the quarter last quarter or with the Ucas. It is a recurring everything we're doing right now and I I don't know if you caught it there's three business finds that we're trying to do is our recurring revenue model.
So whether it's you don't even ARIA can be as a recurring revenue model on it on a monthly basis, you had the ucas I know recurring revenue model basis, usually that three year contracts and then you know so between ucas potentially ARIA can be so just bought four month, you know recurring revenue and you have the.
MSP the managed service practice, which are all recurring revenue models.
So yeah, we would recognize revenue as we you know over the you know the period of three years.
So I mean, the prior quarter was such a disruption I'm just having a hard time figuring out you know exactly what's going on inside the business [noise] I'm, just trying to get an ideal weather that was late in the quarter or you know during the course of the quarter or our how that's going to you know impact revenues going forward.
I mean, if it was the last week of the quarter and you guys books of revenue. Obviously, it's you know not representative of what this quarter look like.
Oh.
Yeah, I mean can you comment on that at all or is.
Well I think it throughout the quarter, where you had some ups and downs as many other companies did we didnt and certain months were stronger than another.
Trends were that the customers were purchasing so at some times, where they're buying product you're getting the whole product warrant. That's a we occurring revenue was the ones that.
We're getting you know the new stuff and that's whereas the sort of a spread throughout the quarter that Ah different things came on board.
So so.
It's difficult to answer your question because what happens is you could have a 400000 all contract that spread out over three years, you've got a million dollar contracts, so you're not going to see huge.
Swings you know every month, you're hoping you just keep increasing it but then there's been a lot you know some large purchases some some of our financial institutions that you know towards.
You know throughout the whole quarter spend millions of dollars you know at a time. So it's a combination of again, we'll Gary saying is you got just purchase orders I've, just selling product delivering it and you had done and then and then you have the you know the recurring revenue, which it happens throughout the whole corner.
You know and if it's at the end of the you know towards a quarter, you're not going to get any of it until you know the part more than likely if we signed at the last week, we're not gonna Bill until the following month.
Yeah, that's just what I'm trying to get a handle on as you know how how how is this distributed so you know if this was distributed evenly over the quarter Youd have you know about a month ago total patient in the quarter yeah.
This activity was spread out evenly it's gonna be little different than if you know the majority of it was in the final month for the quarter.
As soon as we can gain the business Brett We book It you know where.
[laughter], but I'm, just trying to get a handle and whether it's coming out or what's going in Texas, you know a chronic coming quarter now that that's going to be recognized for you know three months worth instead of.
One month, or one and a half or whatever.
Yep.
So so you guys did book revenue from the Ucas in the quarter.
Yes <unk>.
Press releases I know in a prior prior call you had talked about issuing press releases and.
Looks like that's been dislocated or by by the Cobrand thing to some extent how do you see that going forward into the next quarter or too I mean, do you anticipate you know of Korea press releases coming or or.
Nothing that yeah, you know can can really put your finger on at this point.
Nothing right. This second you know we have to just see how things roll out this still or uncertainty as you know when the whole industry. So.
Right now, we just got a hedge the on trying to focus on.
You know the new products and just trying to you know prospect what customers in at a time, where you know customers or just trying to figure out what their business looks like so it's one of those balancing acts to you know push as hard as you can without.
Upsetting the potential customers. So as soon as we have some press releases that that a worthy will ah well get them back out.
So do you do you guys do you have any internal metrics that you guys used to give you an idea of you know what revenues might possibly looked at I don't believe you have any backlog that you guys don't track anything like backlog do Ya.
Yes, we do.
Oh, you at we manage all the pipe and we do all the metrics, but obviously you don't report that but we have a lot of internal data that we do monitor and you know keep a pulse of where that business is doing and how we're doing so we have many meetings going through those within all the operations at the company.
Can you just give an idea what some of those things that you guys are actively monitoring.
Well, obviously pipeline backlog.
And items related to the sales metrics as well as the engineering schedules and.
That was kind of things are what we monitor very closely and watch that as well as we're always maintaining and watching the quality of our products going up to do.
And I mean, how do you how do you guys you know how your quantify play play or you're looking at the number of customers you contacted the potential.
Contract size I mean, what isn't exactly what you're monitoring no. It's you look at when your prospect thing you know you started off a 20% 40, 60 80 and close rate and then you see you know as you move through the pipeline, what's moving ahead or behind what you lost and that's kind of how you man.
Against it you know and then you your review it where your sales individuals and based on <unk> communication with the vendors are customers you figure out how you move it up you know up or down you know on and then you know you always things move right you know things that were 80%.
Close ratio you know got put on hold not like canceled just on hold so you bring that back down to 40 or 60, or however, you want to do and that's how we manage and then we have.
Sales meetings they reviews with the sales people every week, you know and they go over their pipeline and that new opportunities and then we have other meetings, where we have our project managers on the phone with the lead and just you know head of engineering and we go through all.
The you know all the business that's either.
New Esso W.'s that went out the door [laughter] to customers all current Esso w.'s that have already been signed and Rollouts and where we are in the projects.
And when do we expect to close them. So we can actually you know recognize revenue.
And that's you know those a thing that's everyday business that we we do.
And you know I'd imagine and Mark.
Now to set a real favorable looking thing, but has that generally recovered during the course of the summer here.
No. It's a it's up and down some customers a better than others and it's it's a it's a mix match of you know it's just constant communication you know may honestly was the one though one month that hit US you know the toughest.
No I think we have enough backlog you know for much everybody just says shocked it but you know business was already there April I think there was enough backlog and you know for US may was the month that the brakes went on and then June and you know kind of pick back up.
So where you know it was at least some normality, but not not back to where it was but you know at least if people are talking now.
So so you guys kind of like such bottom in May and things are kind of pushing back in the other direction now.
Yeah, this significantly better than.
They were in May.
Got it so and you know last thing I might slow questions. Here is a <unk> maybe you could just give a little color on what the current thinking is on the dividend.
Well I think one of the important things for us is to gain profitability first a as a company mm.
Good close look at it because the cash requirements if were losing money and such that we just can't really doing but we're certainly looking at that and discussing it every quarter with our board.
And I, just think or the economies are still too uncertain to two you know even make that you know if this is something that.
You know you read you know something this morning that you know they have a vaccine. The you know who now what is what does that actually mean to everybody when they get our rolls out the confidence levels until we have you know some type of normality that we can count on then you know, but we are having you know we do review at every board meeting and then.
And talk about it and what you know the options are right now I think we're just you know.
Like I said, we're cautiously optimistic right now.
So so that's all we can think about at once we once we cross that divide backed up so profitability then the dividends kinda back on the table.
Yeah, that's certainly met for thing to look at <unk>.
Alright, well.
Thank you very much for taking the time to answer and Oh, you guys next quarter or.
I will cover doing Brett but.
Yeah. So.
No. It does appear to be no further questions at this time I'll turn the call back over the means making for any closing remarks.
Thank you operator as always I want to thank our shareholders for continued interest and support I strategy are pursuing higher margin business is generating the desired results and as we continue to transition to business. We are encouraged by the strong and growing interesting area and ucas offering we do have a bright future have a great day.
Thank you bye. Thank you and this does conclude your program. Thank you for your participation you may disconnect I didn't make world.
[noise].