Q2 2021 CSP Inc Earnings Call
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Good day, everyone and welcome to today's Fiat S. P. A fiscal second quarter 2021, operating and financial results Conference call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session.
Just start to ask a question at any time by pressing the star one on your Touchtone phone.
Please note this call maybe recorded and I will be seen the bias you didn't need any assistance it is.
Now my pleasure to turn today's program over to Michael Poly of you. Please go ahead.
Thank you Brittany Hello, everyone and thank you for joining us to review <unk> S. P. A.
Fiscal second quarter ended March 31, 2021.
With me on the call today is they took the Lobo Cspi's Chief Executive Officer, 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 she S. P is management on today's call regarding the company's business.
That are not historical facts may be forward looking statements as a term. It is identified in federal securities laws of the words May will expect believe anticipate project plan intend 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 of result, the company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to the number of uncertainties risks and other influences many of which are beyond the company's control that may influence the accuracy of the statements and the <unk>.
Texans upon which the segment and statements of our base.
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-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 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 and C. S. P. I N 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 the call over to Victor The Love of Chief Executive Officer Victor. Please go ahead.
Thanks, Michael and good morning, everyone. Our second quarter performance again highlights the the type of success, we can achieve even during unprecedented business climate and.
In addition to maintaining our business and migrating to a higher margin product and services. We have also had the where with all to develop innovative solutions from the ground up to meet today's growing security concerns. This is becoming cspi's trademark.
We continue to advance the primary objective of transforming CSPI into cyber security wireless the managed service company and I believe the positioning will enable us to execute our long term operator of operating strategies. For example, our team has remain engaged with customers and the new business prospects.
And this kind of continuous touch strategy during the pandemic with the sizable customer base of Florida, I would expect the spi to emerge from the pandemic disruption quicker than most competitors out.
As the state returns to a more normal business climate.
Total revenue for the fiscal second quarter was $14 1 million I am pleased with the overall performance as we experienced the positive indications such as new accounts, new product lines within some existing customers.
Growing pipeline of new opportunities.
I continue to believe we will emerge from the pandemic any more of a formidable company with an expanding complement of offerings to grow top line.
And consistent with previous quarters the.
The revenue mix the pursuit of higher margin offerings allowed us to report our sixth consecutive quarter of year over year gross margin improvement.
The 4% increase over fiscal Q2 2020.
Now, let me review a hallmark of CSP I. If you recall this past December of up to 18000 organizations, who are likely exposed by Sun burst enables cyber attacks a new major attack as early as of few weeks ago in a bad actors actively use the network to access many of the.
The vulnerability systems as possible.
Hello, using techniques to try to hide their action our ability to quickly identify the attacker Tucker's action and stop them provides a unique solution for this emerging cyber security threat demonstrates our capacity to adopt the overarching commitment to develop compelling solutions to be modern day threat.
We achieved this with area of advanced detection and response of ADR and the out of the box solution that requires no special configuration and is purpose built to automatically find and stop all forms of attacks, including advanced persistent threats.
The area of <unk> solution was designed to detect such of tax as well as ransomware malware, which are consistent threats to all organizations.
In March ARIA E D I receive the cyber security Excellent Award now outstanding achievement for Rice recently released solution.
Because of his automatically finds of stops network borne threats as soon as they become active in the network and most importantly, b before harm occurs.
The single platform solution provides an automated AI driven security operation center or sock that provides organizations with benefits of a transitional sock at a fraction of all of the costs. Unlike other solutions ARIA E. D. I provides full threat service coverage for.
The on Prem infrastructure data centers remote devices and cloud environments. It can be operating anywhere by the T V sources with little or no cyber security training.
Since its introduction we had have already received purchase orders from several customers in the win for US is that these orders are not only for Adi.
We're also for total M. S. S. P solutions, where we will monitor all of their security needs, but also their it infrastructure, including firewall switches and routers with the expanding pipeline I look forward to sharing the progress with you over the next few quarters.
For the quarter, our technology solution or T S.
The division revenue was $13 2 million the T. S Division hit on all cylinders and was truly a strong quarter exceeding our internal for.
Jackson's as revenue contribution came from our managed service you cash selling third party products and services, which is highly profitable and reflecting in the quarter quarterly gross margin.
While the budget related.
The delays due to COVID-19.
Remain a factor we have not shifted our strategy and I believe the performance of the test the vision demonstrates a laser like focus.
The staying close to the customer often meeting them informally in accordance with social distancing guidelines.
To remain top of mind when decisions are made.
This is already bearing fruit and I'm confident in width.
It will lead to new orders as we slowly emerge from the pandemic.
Our managed service practices, performing well and continues to grow as we sign new cloud base.
And you cash customers Latin America, which I referred to in Q1 conference call is a bright spot right now as customers are adding bandwidth it doesn't have the locations throughout the region.
Now, let me share some thoughts on the cruise ship industry, which remain a vital market for CSP I. We have recently awarded the ship and expect to have them have a team in place this quarter.
Further another three shifts out of budgeted for retrofit by their own it and we believe the implementation can occur in the fiscal 2021 second half.
This along with the operators planning to resume crews in July is perhaps the declare a sign yet that we are seeing the light at the end of the tunnel.
We are.
Also monitoring and the other developments such as the state of Florida filing suit against the center of for these kind of for disease control and prevention or the C. D C to allow cruises to commence immediately.
We also continue to expand our ucas presence during the quarter as we added several U S based customers I believe the virtual product demonstrations have helped tremendously both from an education of impractical perspective. So I believe we will begin to leverage the pipeline and begin converting these into revenue.
Remember this is a multibillion dollar market opportunity and we only need to carve out a tiny sliver for it to be quite meaningful to C. S. P. I.
Now moving to our high performance products of our H P. P Division revenue for the quarter was point of 9 million below internal expectations. A couple of factors are responsible mirror of comp sales of historically slow during the fiscal second quarter and we did not receive royalty revenue related to the each of the program, but we believe the each day.
Revenue will come in the second half of.
The year as scheduled.
Nevertheless, we remain excited about the long term potential of the business, especially as Ari against customer traction.
As I mentioned earlier, we of course, we closed a few area deals in the fiscal second quarter. However, because these occurred later in the quarter, we expect the.
The reoccurring monthly revenue to initiate during the current quarter. In addition to our ADR Award.
Recognition I mentioned earlier ARIA packet intelligence also received the cyber Security Exelon Award.
The area of P I application.
Enable us complete visibility into the organization's network, including typical unmonitored lateral traffic patterns.
It watches all communication and generates analytics for every packet.
Security operation centers, using security tools, such as the Sim or the ARIA Edr solution. The leverage this enriched data to detect and then stopped network borne threats.
As we wait for movement within a leading cable company.
The added OEM opportunities, we've created for the ARIA.
And the industry accolades embolden us the even though we are competing against much larger organizations because of our solutions were selected due to the innovative approach to find and stop cyber attacks, including ransomware malware and zero day attacks.
We currently have over a dozen channel program partners and we are speaking with several others to ensure a robust channel program, which increases the chances for success.
To summarize our approach since day, one of the pandemic was to maintain contact with the customer I believe the multiple touch points has and will continue to create an atmosphere that will allow us to emerge from the pandemic disruption quicker than most competitors.
Our performance highlights, especially over these past.
Past six quarters include a continued gross margin expansion and the reinforcing our strategy to transition to of cyber security wireless and managed service company.
The entire CSPI team has done a superb job to get us through the storm and buoyed by a solid balance sheet. We continue to have the resources to execute our operating strategies.
And the benefit greatly as customers seek to upgrade their critical infrastructure needs.
With that I will now ask Gary to provide a brief overview on the fiscal second quarter financial performance.
Thanks Victor.
Okay.
Thanks Victor.
As Victor mentioned in his opening remarks.
Our fiscal second quarter revenue was $14 1 million.
While the year over year decline is primarily related to COVID-19 the.
The 24% increase compared to fiscal 2021 first quarter as the company demonstrates our success continues to navigate the impact of COVID-19.
We reported gross profit margin of $4 4 million or 31% of sales compared to a $4 5 million for 27% of sales in the year ago fiscal second quarter, reflecting improved product gross margin percentage plus a mix of higher margin.
Services business.
This is an improvement of 4%.
Our engineering and development expenses for the second quarter was $762000 compared to 760.
A year ago.
In the year ago period.
The increase is due to a higher head count of two which was offset by a reduction in consulting services.
Our SG&A expenses in Q2 were $3 $7 million compared to $3 9 million in last year's fiscal Q2.
Due to a decrease in payroll benefits travel and stock compensation.
The $723000 of income tax expense was primarily driven by an increase in valuation of allowance for our deferred tax assets.
Which is a noncash items offset by a benefit for the effects of a change in the tax law, allowing immediate the adoptions of the covered expenses through the PPP loan.
We reported a net loss of $847000 in the second in the second fiscal quarter or <unk> 20 per share compared to a net loss of 732000 or <unk> 18 per share for the second quarter of fiscal 2020.
Excluding income tax expense the negative impact of currency exchange of $154000.
Would have reported a slight income of $30000 for the quarter.
We ended the second quarter with cash and cash equivalents of $24 million as of March 31, 2021, an increase of $500000 compared to cash and cash equivalents on December 31 2020.
We believe the measures we implemented during fiscal 2020, including the suspension of the quarterly dividend.
<unk> our stock buyback program. In addition to the PPP loan proceeds enabled us to preserve our cash and maintain a robust balance sheet throughout these past 12 months.
We will maintain a similar prudent cash preservation posture for the foreseeable future.
And till such time that the economy and businesses resume normal operations.
We made a significant investment in our business prior to the pandemic such as the development of the Ucas and the ARIA offerings.
And our goal is to monetize them. So we have the resources to fulfill commercializing. These is vital to our executing our business plan.
With that I'll turn it over to the operator to take your questions.
At this time, if he would like to ask a question. Please press star and one on the touch telephone you may remove yourself from the queue at any time by the question. The pound key once again that'll start and one of you would like to ask a question, we'll pause for just a moment to allow questions to queue.
We will take our first question from Joseph <expletive> Youre.
Your line is now open.
Good morning, guys. How are you doing today.
Good morning, Joe.
By the way of Great report finally, finally, we seem to be moving forward what area and this has been a long time coming but that debt that makes it makes me very happy about.
The long term nature of it is the possibilities we have the couple of quick questions off of your press release.
You mentioned that quite a few of purchase orders for have come in on I guess on the area of product line in the last 30 day. So that was subsequent to the end of the quarter. So most of the most of that or all of that revenue would be.
Going forward is that correct and of the World, We're talking of third and fourth quarter revenue.
Oh, it's or actually over the next.
It's on a monthly basis, Joe because there are.
It did there are three year deals. So we will recognize over 36 months because of their managed right. So not only are we selling product. We're doing the managed services. So that's built on a monthly basis. So we're talking about.
Sure.
Technology solutions Division and that can net department not not in a high profile mix of products.
No. It's a combination of both Joe So we sold the ARIA.
But the good the goal was to build out the recurring revenue business and that was both in the MSP. So we tie the two divisions together to where when ARIA is sold you we sell it as a managed service. So not only are we getting the product we get in the maintenance the support.
And then where we're tying it into the managed service.
Aren't always occur like that Joe but in the last couple of deals that we have sold we sold it as a complete managed service on the both umbrella the H P. P and on the Tsi. So revenue will be you know some revenue will be on both sides of the house, okay well.
It has been offering.
He is the managed services and technology Division, So that's where that's what you're saying that's true through that division are you you're getting.
You saw as well as the managed services attach mhm, Okay mhm correct of the.
The next question out of the two large share of leading.
The manufacturing organizations are we talking a fortune 500 type companies here.
Here are we talking something very large.
No not that large now fortunate five.
There.
The tied into.
Larger organizations as subcontractors I.
I can't we can't mention who they are Joe on the.
No I understand that I am just trying to understand are we talking about area. Here Oh are we talking about managed services here or a combination of both.
Both Joe.
Both.
In the perfect World, Joe There will never be an area of cell without managed services.
In the perfect World.
Ah well, but the man.
On the services would be coming out of out of Florida.
Not out of a lot of.
Out of our Massachusetts.
Are you for Oh.
Correct, correct, what what type of but we will be selling the product out of Boston and in the support of maintenance out of Boston, but the support will come out of.
Florida.
Managed service piece of it yet.
What are we talking about.
The cause.
You said multiple facilities.
What are we talking about time of implementation of that says that.
Pretty quickly or is that over the next of.
For the course of the next couple of months six months whatever all of these large none of it it could be as fast as the customer allows us to get.
Get into the you know.
The setup.
Okay.
A couple of quick things the way you mentioned the about the of two awards.
You've got for the Gulf of awards for both the.
For the ADR as well as the packet intelligence and in the quarter, how who.
Who votes on these these awards because they're both.
The call in the ward, how how large the voting.
What was involved with that.
We know from.
The I haven't I don't know exactly.
Okay.
Okay No problem there, but this is this is more than once now that we've been recognized for both ADR and in the pack of intelligent operations.
Yeah every year you have to apply for them.
You know for the awards in.
I guess there's industry.
Experts that vote on this.
Okay.
And another one of which I consider a major announcement this quarter of it and that is the.
The video release of their Morpheus platform.
And in April which supposedly.
Spans areas capabilities and identifying the.
The cyber security attacks am I correct in that.
We partner with them video because they make some some of some of the boards, we use when we poured over our software and we work hand in hand.
And the nice part about that announcement is if you look at the sea they had a and the Nvidia conference sell assets I think just about a week you know and they mentioned some of the security partners. They work closely with the CEO of announced you know there was a few of the major brands that are out there.
In the security space, but they they mentioned you know a CSP I ARIA is one of the a key partners of you know integrating.
All of their platform with ours.
Well well beyond that not only did they mention of.
They provided a link.
Area on the press release the initial initial press release all of this program. They didn't provide the linked to anybody else except us.
At least from my standpoint says that the narrative that we've been trying to say.
Right.
A couple of years is the narrative that they're buying into wholeheartedly with this platform.
Yeah, absolutely. We're working you know that's a lot of the stuff for.
We're working with them is you know with the cable companies that we have mentioned in the past and there are some other five G providers.
On the OEM side of the house.
You know nothing that we've it it just takes a long time to get integrated you know with some of these large organizations, but once you do you know it's a it's the opportunity of last for years.
So it's it's no we were very happy with the progression of we're making with the Nvidia as such one of the watch key.
Players that are out there.
One last point I'll make on the said you you mentioned the Sun several conference calls and that is.
Because C S P I.
The basically fairly unknown in the cyber security interest by Black lot of major players.
The the idea of that in the video what would link to your web site you would take a lot of the the core who you are out of the out of the out of the equation, but that's how I'm looking at anyway. It's a very positive to have a big company tie in Oh, the CSP is the area.
The form.
Yeah, I agree with you Joe Alright, Thanks, a lot of guys appreciate it.
Talk to you soon Joe yes. Thank you.
And once again, if you would like to ask a question that is star and one on your Touchtone phone.
And we will take our next question from Brett Davidson. Your line is now open.
Well I'm glad to be here this morning, but I got a couple.
The question for you guys.
I'm looking at the press release.
Yesterday, the H P.
The alliance servers.
And I'm not entirely sure what that means.
But let me just run the stature. So if I were to go on an H P's site and look the order of per license server.
Of there'd be a dropdown offering all of your equipment is at the money somewhere on the rates right.
No.
[laughter] yeah. So the what we've done is we were working with their OEM team to help integrate.
The area of technology, so when we're selling an appliance where we're using supermicro and also now where you're using the H P platform. That's a you know.
That's a possibility because some of the major brand companies.
Companies. They don't want the use of third party OEM, Mike maybe of supermicro, but if so we we teamed up with H P. They won't be promoting.
No.
Along with it to some of the Oems, but it's more that we were able to get them to you know work with us on the design and.
And the pricing model that makes it attractive for us so when we do sell it you know it'll be profitable for C. S. P. I.
So is this kind of like the seal of approval that says that you know your stuff works with with the H R.
Or okay, yeah, Yeah, Yeah, Hey, the next step potentially could be what you are saying, but we're not at that point yet you know we're a step one of the the relationship.
Got it and it was the.
Perfect.
It would be it would be what you know you suggested if we could do that on the the cyber security you know on the H P. But we're not at that stage.
Yeah.
That is the question, we're just not there yet.
This is kind of like the pace of proven type things where.
You guys kind of getting your stuff from some of their equipment.
We're still debating where we're still the umbrella we're not in the.
The marriage stayed at the stage yet.
Yeah, well it comes with a lot of pitfalls of I'm, okay with it.
Uh huh.
So.
And the on those purchase orders can you add a little color as to.
Got from Joey the three year deals and are the <unk>.
Size of these I mean are we talking like tens of thousands of dollars are we talking six figures or you know.
What was the chairman of the contract the there are hundreds of thousands of them.
Nice.
Yeah, Yeah, Yeah, that's exactly the type of color I was looking for so that the works good.
I do have a question, that's probably more appointed Gary here and there was a big jump in the long term receivable and like.
Likewise.
Similar increase in non current liabilities can you add some color as the what that represents.
From a.
Long term.
Purchases with the one of our customers and we've done these over the years, so that and their three and five year deals. So that's what we're doing is putting that on the balance sheet.
And that's equipment software install that type of deal.
Yeah. So if you kind of items right.
Yeah and that also is the the non current liability.
Right.
Got it okay. That's both sides of the alright I got it.
Oh, Yeah, I think that's about all I got them.
So yeah I don't so this isn't going to be like a huge splash. This isn't gonna be where all of the sudden you know 5 million of revenue.
Shows up on the.
On the income statement. This is all going to be incremental because you know like you said in the perfect World.
You're going to capture both the hardware and the management of this correct correct right.
That's correct right.
Nice yeah, we're trying to build a recurring revenue model as I've been saying and you know it's it took a few years with the MSP to buildup.
A decent sized percentage of the overall revenue and you know we're hoping if we could stay on the same track that.
Yeah, we did with the MSP and you cash it would be a you know another 12 to 18 months it'll be significant revenue that you can count on quarter over quarter and yeah for years to come.
Yeah, and it's not as sexy as the big 5 million increase in revenues, but it sure probably has a lot more value to it so from all of the multiple on our recurring revenue is definitely you know the the onetime hits its worth some things, but the recurring revenue you know you're getting a 10 to 15 ex factor on top of.
Line so for.
The only.
Yeah.
Sorry.
Are you guys gonna start breaking that out in the quarterly the.
That is from recurring revenues.
When it gets.
Again, the portion of it we will.
Got it alright.
Alright that sounds good. Thank you. So much you guys have per day yeah.
The Youtube Brett nice talking to you.
Bye bye.
And there are no further questions at this time I will now turn the program back over to Victor Debello.
Thank you as always I want to thank our shareholders for the continued interest and support we have maintained our focus throughout the current climate, we have the resources and product of surface portfolio to grow the business, Gary and I look forward to sharing our progress in the fiscal third quarter operating results in August until then stay.
Steaks.
Thank you.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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