Q3 2021 CSP Inc Earnings Call

Okay.

And could conceivably win over the next coming months I believe this will be of competitive differentiator as we compete with other companies for these engineers.

Now, let me pivot to the cruise line as you're aware in the industry has been decimated by the pandemic and it directly impacted our ability to gain access to cruise ships and complete our cash. However, the Q2 activity level was encouraging and the outlook today is far better than a year ago of pipeline has increased which validates our decision to maintain our staffing.

<unk> throughout the O deal as it would enable us to scale quickly when the need arises.

However, because of this remains a fluid situation and requires careful monitoring so we will adjust the assignments if necessary to ensure the team safety.

We also continue to expand are you cash revenue, mostly from smaller transactions as larger deals are taking longer to close due to the longer sales cycle and timing of customers' existing contract expiring.

However.

I believe it's only a matter of time before we land a big customer book, because we have a superior superior and award winning product, which allows us to carve out a niche in the multi billion dollar market opportunity.

I am pleased with the performance with T. S. This was offset by a slower than expected performance of.

Of the high performance products of our H P. P Division revenue for the quarter was $1 million as mayor of comp perform as expected while royalty revenue related to the each of the program did not materialize as we had anticipated as we now expect to record royalty revenue in the current fiscal fourth quarter. However.

Our outlook for Asia P is considered the considerable because the activity level of our award winning ARIA platform is high it continues to garner tremendous interest during the quarter. It gives us greater comfort as we move forward.

For it as it will surely becoming a star wars for the H P. P business and contributes heavily to the success of CSPI.

As you know we have spent considerable resources developing area and I believe the time, we devoted to refine our messaging and educate the market is yielding positive momentum. For example, we currently have over three dozen opportunities in the sales funnel, including several from of T. S based client with over 30% of these in the law.

<unk> or advanced negotiating stages.

Also share with you in at point of Illinois during the quarter, we have fine tuned the process for Onboarding of our ADR of customers between Asia P. T. S. MSP. The current recurring monthly revenue from this will commence in the current fiscal fourth quarter. Moreover, it will represent the integration of our ARIA Adi with MSP business and with.

Several of the pipeline lead originating from the T. S visit is clearly demonstrating the synergies.

Possibilities of the T S and H P P business.

Additionally, during Q3, we signed three additional area of Adi customers two of which we plan to install this quarter in the third during fiscal Q1 of 2022 with recurring revenue commencing in fiscal 2022 first and second quarters, respectively. As a reminder, each of these of three year arrangements general.

<unk> monthly revenue so.

It's just the tip of the iceberg as we expect to scale quite rapidly and could achieve in the <unk> revenue in the millions.

This validates everything we have done up to this point and strengthens our conviction that <unk> will be a game changer and will be a dynamic growth driver for H P. P visits for all.

Speaking of gifts the Spi two best in breed businesses with superior products and services for <unk>.

Summarize we continue to capitalize on those business opportunities that strengthen our long term growth ambitions, while managing the issues.

Those by COVID-19 supply chain in talent acquisition I believe we have a unique set of products and services that continue to propel the T. S business, while a patient patiently waiting for H B P business to begin contributing.

And coming for you.

I believe each of these businesses when performing to the best of the ability to provide us with a significant revenue and gross margin opportunity complement by a balance sheet that gives.

The resources to pursue our plans for the foreseeable future with that I will now ask Gary to provide a brief overview on the fiscal third quarter financial performance.

Hum.

As Victor mentioned in his opening remarks.

Third quarter revenue of $13.7 million.

For the year over year had a slight decline.

Hearing anything.

Limitations imposed by COVID-19, especially with the customer visits.

Jack.

We still need instead of a core gross profit.

$2 million.

48% of the sales compared with $42 million or 46% of sale in the year ago fiscal third quarter.

I also want to point out that our comp.

Sales for service increased 48% from the engineers Q3 of them.

The added staff to our network operations Center.

Yeah the key.

Year over year gross margin improvement to the point.

Okay from continue to sell the mix of higher margin service business.

Our near and short term goal is to maintain the annual gross margin in the mid to high 20.

This is the.

Higher margin products become larger contributors to the top line.

Engineering and development expenses for the fiscal third quarter, the $700000 compared to 693000 in the year ago period.

The increase was due to the higher head count and engineering moving forward.

Open positions.

As Victor mentioned earlier this is a tight labor market for qualified engineers.

We may see increased expenses in the coming quarter as we compete for talent.

Our SG&A expenses in Q3 for $3.9 million essentially flat with the year ago Q3.

The reported a net loss of $423000 from the third quarter of 10 per share compared with the net loss of $110000 or <unk> <unk> per share for the third quarter of fiscal 2020.

We ended the third quarter.

With cash and cash equivalents of 1919 seven assets.

June 30 of 2021.

The slight increase compared to cash and cash equivalents on September 32020.

We believe that the measures implemented during the fiscal 2020, including the suspension of our quarterly dividend stopping the stock buyback program.

<unk> to the PPP loans for <unk> enabled us to preserve our cash and maintaining a robust balance sheet throughout the pandemic.

We will maintain the similar prudent cash preservation posture for the foreseeable future.

<unk> net the economy and the business has resumed normal operations.

With that I will turn it over to the operating and can take your questions.

And at this time, if you'd like to ask a question. Please press star and the one on your Touchtone phone that is star one for questions.

Well questions per cube.

Okay.

Okay.

Thanks, again value story and one for questions.

And we'll take a question from Joseph from there just with the segment of investments. Please go ahead.

Good morning, guys how are you today.

The German wrongdoing.

The real quick question off the top of your statements of the carrier that.

That is the you mentioned that the the <unk>.

<unk> is where our supply chain issues were a factor of this quarter.

Has that.

Ben.

Now I'll turn the extent going into this quarter.

Or are we still have the full supply chain from.

Yes, we are still having a slow supply chain, we're just 12 to 15 weeks.

On some products that it's taking you know on some of the.

The major brands that we represent.

So all we're hoping what we close like in Q2, we can ship in Q3 and what we closed in Q3, we were closing.

That is kind of like a rolling quarter of <unk>.

Backlog, that's the way we're looking at it right now.

The volume that you would've had last quarter falling into the the current quarter then.

Yeah correct.

Okay.

You said there is no into the revenue.

In the third quarter.

Youre expecting somebody to the royalty revenue, possibly in the fourth quarter.

Correct correct.

Yeah.

On the other point you made.

It brings the taken about transferring transitioning the ADR.

The product line for the technology solutions I guess, that's the vital ADR service that you're offering correct doesn't doesn't that open up a whole series of additional potential customers in the managed security service providers.

That's exactly what we're doing in.

And Florida is the data we're acting as a managed security service provider.

For the customers.

That's correct utilizing utilized utilizing our area of software the correct Yep.

Yep.

And the customers that we've closed this quarter have signed contracts for both.

MSP to manage the rest of their infrastructure plus the managed ADR.

Okay.

So there is multiple contracts that were signed.

Hum.

For each of the customers, but the question is.

Uh huh.

I understand that but the question is are we pursuing.

Other managed security service providers across the country that could be utilizing the service just like we are in Florida.

We're talking to some of them.

What does the as an investment right that the.

They if they want to get into it they have to have people that.

Someone has the monitor it so it's not only talking about them purchasing the product and us helping them get it set up.

The the talent that they have to have.

Looking at the monitors right so.

That's where it takes a little longer because we're talking to them about opening up.

<unk> business unit for them in California or in other areas of the country.

So that's the decision of course, the CEO CFO has to make these companies about opening up of new business Division inside the current you know.

Essentially they are not doing that currently we're not monitoring.

They're kind of sick.

Charity side of all that there could be monitoring the firewalls, but they may not have of Sim.

That's the day.

The giving the customer has an offering.

Okay.

Uh huh.

One one point you've made several times on previous calls of that is that the three areas that we're emphasizing going forward the cyber security and that's obviously what area.

And so ex the manager services, which we're doing well with down in Florida, and the third area and maybe you could add more color. The this is wireless.

Besides that several times, what do you see that area is that gives us some hope.

Going down the road here for the future.

Well that's been a big part of what we've done for a long time to where we're one of Aruba is.

Biggest southeast partner.

And we have the talent of expertise to help different companies of different sizes.

So we sell the the not only the profit from the <unk>.

But also the services to install it and we have also been offering a managed service wireless offering too so where the customer doesn't have to buy the product. They just basically rent the product with the services. So we started opening up that has an offering inside of our MSP and we probably have.

I'd say half of dozen accounts already under it are various sizes to where.

They don't want to have to worry about any of the wireless getting that up and running and making sure. The security on the wireless and all of that we take care of all of that for them. So we've been doing wireless for years right over a decade, but now we.

Brought that piece of it into the MSP offering also.

As of our expert.

Engineering expertise, allowing us to let's.

The advance because we're buying the product from August.

Some of our suppliers correct, but the engineering that we're putting into <unk>.

The <unk>.

Separates us to some extent from some of our competitors.

Yes.

Product out there that we represent the.

A couple of them that of next.

It gives it allows people to come on and on I'm not different networks of different companies, we have engineering expertise and that in that area. Some of the large hospitals that were actually doing business with and some of the large financial institutions I can't mention their names that you would know who they are.

We are doing all of that so we're setting up the knack for them all of the the security policies.

Along with the wireless the wireless alone is not that difficult, but it's it's the access to getting on to the wireless and who has.

<unk>.

The the right credentials to get answering certain pieces of the network of stuff like that that's what we're really good at and that's why different organizations.

This school systems you name. It we have we have we're doing engineering work in and those segments all around the neck in the wireless.

It sounds like the Mi.

Just a matter of time for some of these some of the proposals that are out there some of them have got the close.

And the more you have out there of the possibilities of <unk>.

Let's put it this way <unk> doing much much more.

Yes, the pipeline is getting.

Is growing.

At a steady rate and we were actually closing business to get some of those reference full accounts that are so important because that's the question that you.

The asked all the time of are you on the gardener of pull out of the force no were not well do you have any references.

Up until recently, we didn't have any of that was that was the.

You know.

It was a big issue right. How do you see your product is great, but you have nobody nobody wants to be the first one right. So there has been some trucks that we've had with some customers on the MSP side. The demo day, we did of POC. They bought off on it and now we're building that reference of all account list that we're able to distribute.

The other.

Companies that we're talking to okay great.

That's all for my standby it sounds like Youre doing fine, it's just a matter of.

Getting some more volume.

Yeah.

This is Peter thanks for thanks, a lot.

Thanks, Joe.

Once again of Star and one for any further questions today starting one.

And it does appear we have no further questions I'll return the floor for Victor Dorobo for any additional or closing remarks.

Thank you as always I want to thank our shareholders.

The.

I think the just look.

Keep the exact we have somebody the jumped into the queue.

Yes, now we can go to Brett Davidson private Investor. Please go ahead.

Yes, apparently had been work for the first time I tried to get into queue.

The late jumping.

Jumping for you and Brian.

Im doing pretty good I've got just a couple of quick questions from some time ago on one of these calls with you had talked about.

Issuing press releases and the.

The quarterly release here indicates that.

Theres three new already of customers.

And I'm just wondering going forward are we going to find out about these through press releases or is this going to come in the in the quarterly.

Is that because you are prevented from up.

Discussing these true through press.

The press releases, yes the.

The customers no one wants to know what theyre doing internally with the security policies and stuff like that so.

No.

You mentioned, you know coming forward I might have mentioned the area of business the vertical but I won't be able to you mentioned the customers. Unfortunately everybody's okay tight lipped royalties.

Are these.

Our nature the size wise that.

You guys can just do a generic press release, saying, the new customer or yeah, we could yes, no there isn't the.

Two that we.

Two out of the three are of.

<unk> you know size.

On a monthly basis, so we're working with them to get something approved.

But you know.

We just put them on and they want to the.

The Theres still just what they want from time to go by before the we do a press release on that just for we do that so that will be coming up in the next month of too.

I'd say on a lease of company.

For us GAAP and scores of people might be helpful.

Definitely definitely there we're just like I say, we got it a little time, we just signed them up we just got them installed. So we had a little time to go by and then.

We'll get our marketing department to write something that they're comfortable with then we'll do some generic press releases for sure in the upcoming months.

Great that sounds good.

And the other thing is the follow up on Joe's question regarding other.

On the service providers.

Using the ARIA product.

How would those tend to ex construction or would that be like the licensing agreement or would this be like the same three year.

We sort of whatever that.

Youre doing with your customers is yes, there'll be buying the product.

If it's if it's.

A cloud based customer then it'll be licensed against support.

So we built we built the product for multi tenant solution. So we could sell one tenant to them and then they can have multiple tenants on the niche and we basically kind of price it per IP. So as they say you know if the <unk>.

Customer has 50 Ips of 500 or of 5000 is price that way so they could manage it on the one screen and have multi tenant on each each and every one we do the same for our internal in our stock that we have here one tenant and you know everybody manage the customers.

As we go so there'll be other.

To do that.

And if it's product then they'll just buy the product for the customer straight out or if they wanted to do it on a monthly basis. They could do it that way too well off from the same as we would do if we were selling direct to the.

Alright.

They've got five customers you know this month in the gut.

10 next month.

Do you rely on them the report back how many Ips.

Well, yes, because the.

The license the yes, they don't have an unlimited license key right we sell them.

Got it.

We sell them as they go we would have to know who the end user is also and then we would say okay. How many Ips and then we would true up on a monthly basis or quarterly basis.

If they grow so just because of the customer started off with 1200 Ips doesn't mean, you know the following month over the quarter Theyre not at 500, so there's a true of process inside of the contract that we're constantly monitoring and.

They can't hide it because we are right now.

They won't be able to add those ips onto it if we don't allow them the axis <unk>.

Piece to it.

Got it.

And the last thing I have the.

It's the kind of tough from our end.

<unk>.

No real insight whatsoever into the sort of the contract size of the timing of adding these revenues.

The scale that you guys anticipate these new things.

Arriving at your door.

Or are you guys doing any kind of modeling internally.

So the determine.

<unk> revenues are going to look like next quarter, and then maybe a couple more quarters out or next year. Yeah. We're doing we're doing budgeting modeling now for 2022. So we're putting some models together what we estimate it could look like right just its all on the timing at this stage, but yeah of course, we're doing that we're going to build a bunch of.

For next year.

And we're looking at.

And then we're looking at the current pipeline and then the growth of how fast were adding.

New.

New potential customers.

Customers are two of the you.

You know to the list and then the size you know just to give you an idea.

Some of the stuff that we're dealing with on the potentials are from 2000 of month on a customer to $50000 a month to two some of the customers we're talking to so there's a range.

You know of possibilities on what that would look like.

You know you start getting a couple of $50000 per month.

Clients it moves the needle pretty fast so, but that's but the good piece of it is that we have a lot of the pipeline has grown.

Quarter over quarter in the in the POC of Povs wherever you want the column the.

They're growing right, we have quite a few to where we're actually installing it to the customer site.

And you know they're kicking the tires of course, they're looking at other competitors that we have we're dealing with two but hopefully we're doing the right job to the show value compared to some of the other players that are in the market space.

Yeah.

So.

Some of this the.

Modeling some of the scenarios, leading the concerns about.

That's not the other bodies the carry out this work.

Is the impact in like clearing decisions now.

Now the thing is one thing about you know there's plenty of engineers out there.

The only thing is is how much you have to pay them right. It sounded like there's not a you know with the salesperson is a lot out there, but the only so many good ones, but in the engineering world.

You can put them through the ring of pretty quick to find out how good. They are and then you just have to figure out what the right salary is to bring them onboard Ryan.

The good and the bad is all engineers of looking for better opportunities right now and you know the good is that we're getting a lot of people knocking on doors of the bad is you always got to make sure you have tried to keep your internal engineers that are really good happy and they stay with your company. So it's a it's definitely.

It's a weird place right there with the engineering World. We live in right now constantly look in the in the head hunters or you know who they call me not even know my position [laughter] asking if I.

Asking if I want a job for a security engineers other I'm like you don't even know who you're calling in you know.

But well I got four of five of those calls a week from head on line. So if I'm getting them you know everyone who works here is getting them also.

Yeah. So so but you would see that other than issue being able to all of the team now not an author of yourself no not at all no no not at all and I think some of the awards we won two recently.

Consistently over the last two three years of one of the best places to work I think are helping.

When people check us out that the feedback.

You know between the benefit package the atmosphere of everything else that goes along.

It comes up pretty positive and then the.

One thing with the engineers to it's not like you are working for one company with one infrastructure. When you work for a reseller network integrator youre constantly and different networks.

Few like change your like challenge this is the perfect place.

For an engineered at once that challenge.

The weekly or monthly basis, you won't be bored with the same infrastructure.

Okay.

Well, yes that debt to me that's huge.

Taking care of your employees.

That should.

Should pay off down the road for us.

I appreciate you taking the time to answer the question for me.

Look forward to talking you guys next time around you got to have a great.

Thanks for your soon.

Yeah, you too bye bye.

Once again star line for further questions.

So it looks like we have no questions Vicki I'll turn it back to you. Okay. Thank you operator 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 reason.

Most of the product and service portfolio to grow the business, Gary and I look forward to sharing our progress in the fiscal fourth quarter and full year 2021 operating results in December until then be well and stay safe.

Thank you for this will conclude today's program. Thank you for your participation you may now disconnect.

Yeah.

Yeah.

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