Q1 2023 CSP Inc Earnings Call
Good day.
Come to the first quarter and fiscal year 2023 conference call.
This time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Michael.
The floor is yours.
Terrific. Thank you Kelly.
Hello, everyone and thank you for joining us to review Cspi's fiscal 2023 first quarter results, which ended December 31, 2022 with me on the call today is Victor to logo 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 management on today's call regarding the company's business that are not historical facts may be forward looking statements as a term is identified in federal securities laws. 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 or results.
Company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to several uncertainties risks and other influences many of which are beyond the company's control that may influence the accuracy of the statements and projections upon which the segment and statements are based on factors that may affect the company's results but are not.
<unk> to the risks and uncertainties discussed in the risk factors section of the <unk>.
Annual report on Form 10-K, and quarterly reports on Form 10-Q filed with Securities and Exchange Commission.
But 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.
Forward looking statements are qualified in their entirety by these cautionary statements excuse pie 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 <unk>, Chief Executive Officer Victor. Please go ahead.
Okay.
Thanks, Michael and good morning, everyone.
This morning, we reported a very strong start to the fiscal year 2023.
New product sales, 63% service sales, 13% in overall total sales, 48% over the first quarter of prior fiscal year.
When we last talked.
With you back in December we noted that each of the business segments. We're hitting on all cylinders, we continued to execute with similar fashion during the first quarter and increase our overall gross margins by two five percentage points over last year to 31, 7%.
The revenue and gross margin led to generating 21 cents in earnings per share where last year, we lost nine.
As shared during the last year's fiscal first quarter.
All in all we are quite proud of our performance to start fiscal 2023.
During the past several years, we've stayed the course as we migrated our business to offer higher value cybersecurity wireless and managed service offerings. It was easy express it wasn't easy, especially with the onset of COVID-19, pandemic and its related challenges, but our business model is beginning to show both its value to our customers.
As well as potential to our shareholders the demand for our award winning products and services is building, we are increasing business with our existing customers while at the same time, gaining new customers.
Our technology solution business continues to grow.
During the first quarter.
At the same time, our high performance product business revenue more than doubled compared to a year year old first quarter was primarily due to sizeable customer engagements, but they fully recognized during the quarter, while the timing of potential orders is subject to movement from one quarter to another our business pipeline is robust and we.
Cautiously optimistic that our <unk> business will be growing contributor as the fiscal year progresses.
In this morning's news release I noted our business.
And the opportunity pipeline, we have in front of us is stronger today than any time in our company's history. Our strategy combined with our unique solutions and top notch engineers are some of the leading factors. We are continue to fund R&D. So that our product continues to provide these unique solutions to our expanding base of customers.
The early market reception to these for our capabilities.
Capabilities is opening doors for us with companies that have never talk to CSPI before and we hope to have some positive news over the coming months.
While we have a strong momentum in our opportunities in the marketplace continues to expand we do have hurdles to overcome to realize our full potential one of the highest such hurdles as a continuous supply chain constraints.
Our experience over a few of our suppliers. The problem has gotten a lot better since the height of last summer. However, the historic six week delivery timeframe I know it is still being realized however, the good news is that our customers continues to stay loyal to us.
We believe the supply chain issues continue to exist because China's lockdown until mid December and there are still enforcing very severe COVID-19 quarantine to certain areas.
While some of our suppliers have moved their sourcing out of China. They can't ramp up overnight. So we remain hopeful that China, where relaxes regulations, which will reduce supply chain constraints over time.
Our revenue growth during the fiscal quarter was driven by a technology solution, our Ts business and managed service practice, we generated revenue of $15 9 million, a 40% increase over a year ago Ti revenue and we are winning new customers, while earning increased business from existing customers.
During the beginning of the pandemic, we quickly shifted this segment because it was shorter sales cycles and sales were not being impacted by restrictions and we have continued to focus on this segment as its become become a growth engine over the past couple of years.
The managed service practice revenue grew 24, 4% from prior year and was driven by customers increase customers, increasing use of the implementation and installation and training capabilities.
Our high performance products, our ACP business had one of its strongest quarters in quite some time and reinforces the sentiment that we have been sharing with you over the past year, we reported revenue of $2 5 million, a significant increase compared to a year ago level of $1 1 million the.
Primary contributor was from a government contract, which had been expected for some time and we were just waiting for some critical components to finalize and ship the order.
<unk> also included revenue contributions from royalty revenue related to <unk> program as well as mirror com.
To summarize we had a great start to the fiscal year, our strategy of focusing on higher margin products and services that meet customer demands is yielding solid progress each quarter and we have reported two consecutive quarters of 40% plus revenue growth.
Despite converting some of the older backlog to revenue. We also we also booked nearly an equal number of order new orders. This demonstrates the strength of our offering yet it also highlights our continued engagement.
And customer loyalty during this period since we have not lost a single order from the backlog.
We are successfully transitioning our business during this unprecedented period and today, we are an active player in the high growth and margin business and we believe that we have the resources and width and wherewithal and strategy to realize our potential.
With that I will now ask Gary to provide a brief overview of our fiscal first quarter financial performance.
Thanks Victor.
As Victor mentioned in his opening remarks, we had a solid fiscal first quarter with revenue of $18 $3 million, a sizeable improvement over the year ago fiscal first quarter.
We reported gross profit of $5 $8 million.
It's 31, 7% of sales compared with $3 $6 million or 29, 2% of sales in the year ago fiscal first quarter.
And with each of the revenue sources, we experienced a significant increase in product gross margin compared to the year ago fiscal first quarter level, while services gross margin again surpassed 50%.
Our engineering and development expenses for the first fiscal quarter were $836000 compared to approximately 627000 in the year ago period.
As we have disclosed previously the increase is primarily due to higher personnel costs, which include outside consultants.
Our SG&A expenses in Q1 were $3 $6 million up slightly compared to the year ago fiscal first quarter due to increased variable compensation based on higher gross margin profit.
We reported net income of $1 million in the first fiscal quarter or 21.
<unk> per diluted share compared with a loss of $366000 or <unk> <unk> per common share for fiscal 2020 twos first quarter.
The company had cash and cash equivalents of $19 6 million as of December 31, 2022, which is approximately $4 $4 million lower as compared to the September 32022 level.
Primarily due to a previously referenced large financing customer sale recognized in revenue in the fourth quarter of fiscal year 2022, but the cost was paid in the first quarter of fiscal year 2023 during the fiscal 'twenty three first quarter.
We have authorized to issue that.
Additional 300000 shares of common stock as part of our CSPI 2014 employee stock purchase plan I also want to highlight that the board of directors approved a quarterly dividend of <unk> <unk> per share payable on March 14th 2023.
Three to shareholders of record on the close of business on February 24th 2023.
The vigilance, we have employed over the past couple of years have ensured that we have the resources to execute the multiyear strategy growth strategy of transforming to a cyber security wireless and managed service company with that I will turn it over to the operator to take your.
<unk>.
Certainly the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that one closing a question. Please pickup your handset listing on the speaker phone to provide optimum cost. Please.
Please hold just a moment, while we poll for questions.
Okay.
Your first question is coming from Joseph <unk>.
Morgan investments. Please pose your question your line is open.
Good morning, guys how are you today.
Hi, Joe very good.
Okay couple of quick questions.
You mentioned in the press release about <unk>.
A sizable customer engagement in the first quarter I'm, assuming you don't want to name, but sizable engagements.
Correct in that.
You don't want to name a customer itself.
Right the customer per se right.
Bob.
And you said the supply chain issues are still.
Better than they were last year, but still not up to snuff.
At this point in time.
Thats, a two or three years ago.
That's correct, it's gotten a little better but in certain vendors that we have to do quite a bit of business.
It's not that much better.
Okay. Another one would be.
On our previous calls you've mentioned about the.
The issues of obtaining new personnel or hiring new people I assume with the latest amount of announcements on Hy Tech lay out is that lessening.
Sure.
In other words are you able to find people a little easier than you were let's say six months ago.
Well, we haven't really hired anyone else that we're looking for but I can tell you it's slowed down from people, leaving.
Looking for other opportunities the environment here CSPI has been.
It really stable both on the engineering sales and internal support which which is good I think people are.
Respecting.
The job positions. They currently have and may be nervous to be.
The new person at any other organizations in case there are layoffs.
Again like I said.
Numerous announcements in the last month or so in the high tech industry I assume that.
That's helpful, Let's put it that way.
A couple of quick things from your.
From your letter your newsletter.
Year end letter.
You talked about unified communications as a service growing.
Just was wondering in that is that something that youre finding.
Our solid.
Potential down the road here with our.
Yeah, and the pipeline has been real strong we closed.
Multiple deals in the quarter and the pipeline is as strong as it's been.
We are hopeful that theres some large opportunities.
Multi year opportunities that we're trying to close now that will will definitely help because all these deals that we're signing.
Three year deals billed on a monthly basis.
Okay that sounds good.
How about the cruise industry.
Opened up a little bit.
In the last let's say couple of months.
Conversations have opened up which are good and we are doing some planning right now.
To rollout.
Either.
Software security software on the ships or some wireless but the talks in.
And the engagements are happening.
On a more frequent basis nothing confirmed of exactly when we're going to start with <unk>.
During the work on the ships.
What the cruise lines, but the conversational piece has been active lately.
Just for my information.
Or are you actually doing prior priority is Wi Fi, what where you are putting in the cruise ships.
In past years, yes it.
It was.
It was the Wi Fi.
And it was it was.
It was not only.
Doing the configuration of the wireless, but we were also doing the pre configuration and we are all doing a site map. So we'd go on the ship first and we would do the site maps of where all the Aps would be place I need to be placed and then we're also doing the <unk> solution, which is called <unk>.
They are pass.
Okay.
Made by HP Aruba.
So some of the ships have this capability in some ships are still awaiting.
But is that correct.
Yes, we have.
They all have them, it's just they were upgrading to.
A better quality of product some of those ships have older products.
More older Aps and being on a vessel, where there's a lot of scale.
These aps or a lot more efficient okay.
One other point here and that is.
You didn't mention.
How did the exchange rate the currency exchange rate effect this quarter versus <unk>.
Previously we've had some benefits of the currency exchange rate in the previous quarter.
Was there a negative to this quarter, what the currency exchange yes.
Yes, we did we had it was negative this quarter the dollar weakened against the yes. It was negative almost 500000, okay. So that so again, if it was equal that'd be a 500000 more that we would have had on that.
Correct correct, yes, it was 400 and I forgot exactly and then we will see.
$460 $70 and yet and one other point I wanted to just basically a statement.
As a great deal of current current kernel pipe around artificial intelligence.
Between Microsoft by Google buying into it.
And I just want to make the point that.
Have we not incorporated artificial intelligence in our ARIA platform two to three years ago.
Okay.
Yeah, we did absolutely yes.
Somewhat.
I would say, we're not behind the game in that particular.
That particular aspect.
Again, thanks, a lot guys.
Thank you Joe I'll talk to you soon.
Your next question is coming from Brett Davidson with investors later, please pose your question your line is nice.
Good morning.
Good morning Martin.
Lots of a morning person, but let's just say that helps.
Okay.
I just got one one quick question.
Wow, you already touched on the cruise business, which has been bumping along.
High performance products.
I know you indicated that the supply chain is still an issue.
If you could have gotten your hands on everything you needed.
What if you could give me an estimate of what the additional sales volume would look like over there.
On the HCP or the total company.
I mean with the <unk>.
Product sales.
America himself.
What would it have looked like if you guys could have gotten your hands on.
The parts that you needed.
Once you have orders for.
Of the backlog is.
But $4 4 million.
Now some of that is related to the.
<unk>.
ARIA contracts because they are deferred over time, so you can keep them in backlog.
So that's a portion of it as well as some.
We've got product, but the customer doesn't want it they've got a spread over time. So it isn't that we would get the entire amount at one moment.
So I guess so.
The supply chain issue.
<unk> did that impact your ability to deliver product or not really yet.
I would only add 2 million around 2 million, maybe just shy of $2 million would have been able to been able to go and if we had.
The components to build.
Our systems, Yes, I would say about half.
And that's at a very high profit margin.
Okay.
I wonder affected considerably.
And I would imagine.
Since you know since the end of the quarter I'd imagine that pressures is continuing to ease.
Getting your hands on the parts of it.
Not really no Idaho to be honest with you in some cases, it's getting worse.
Oh My God.
Let's hope that swings the other way because.
2 million today sounds better than 2 million next quarter.
Oh, yes, it's all I got.
Yes.
As soon as we can get it shipped out we do you know the gas we're at the Mercy of some of these larger organizations.
Your next question is coming.
Mike Mike price. Please pose your question your line is live.
Good morning, congratulations on a good quarter.
Can you tell us what the ARIA.
Revenues were for the quarter and how much of the backlog is ARIA related.
The ARIA revenue was about.
I think about 100.
40000, and then the backlog is probably $5 million.
Is this is not a big growth area.
It seems like there is huge upside with.
ARIA.
Is that not the case there is yes.
Yes. It is it's a it's what we're focusing on and moving forward with it.
But as I mentioned on previous calls the technology once we get in.
We have a really good chance of winning it but we've had some name recognition problems. You know it's just we're not in the gardener you don't get there until you have revenue and it's.
Sometimes they go with the larger company, even if that.
If they're not.
If our product outperforms them, they still kind of go with the company. That's a multibillion dollar organization, we've seen that quite a bit actually so we have over a dozen accounts now so it's getting a little easier, but we're still not on that magic quadrant and when you get into.
Our Sim product they do a lot of the some of the organizations are looking for that magic quadrant and we're not on a.
We're talking to Gardner, but theres a lot to go through and as a revenue requirement. So it's a chicken and the egg effect, how do you get on there unless you have revenue and how do you get the revenue if you're not on it so.
But I think this area.
Taking time.
As the industry aware of the technology.
Good as you think it is.
Sure.
We're providing as much information as we can to you now.
So as many people that will listen.
The question is can somebody larger.
Or do more with ARIA than what if you can't get in the doors the question.
Yeah absolutely.
Okay.
Couple of other quick questions I didn't see anything about the share repurchase the original 194000 shares.
I think calling something on the order of 20000 or 22000 has been repurchased.
Is that correct.
Yes, we didn't purchase any stock in the in the in the quarter.
Anything since the end of the quarter that you can discuss.
Now well, we're in a period, where we can't we couldnt buy okay.
Well again, it seems like with what you've outlined as far as the prospects.
Everything going forward it seems like.
If you don't buy it now and youre not going be able to buy it.
Not the case.
Yes.
I know I know you want to keep the powder dry but at the same time.
It looks like there is huge upside.
For what Youre doing.
Mhm, yeah absolutely.
Okay.
Last question has to do with the dividend.
Never been in a better position good cash position interest rates are up so you hopefully our earnings cement.
Interest income on the cash and the dividend is 20% of what it was pre COVID-19 pre PPP.
Any prospects there for raising the dividends.
We talked about at our last meeting we decide right at this stage.
Some of the financing deals we've been doing with our customers to keep the keep that sticky.
We're looking at keeping the cash.
At hand, right at this particular point.
Things may change in the near future.
Okay, Alright, I appreciate it and look forward to the next call. Thank you.
Thank you.
Once again Mr. Arnie.
Remaining questions or comments. Please press star one on your phone at this time.
There appear to be no further questions in queue. At this time I would like to turn the floor back over to the CEO Victor <unk> for <unk>.
Any closing remarks.
Thank you as always I want to thank our shareholders for continuing interest and support we have now reported consecutive quarters of significant growth and momentum we are continuing to experience in the current quarter excise. It excites us for the remainder of the year, we have solid revenue conversion strong pipeline in a product and service portfolio.
Generating favorable gross margins, Gary and I look forward to sharing our progress in fiscal 2023 second quarter operating results in May until then be well and stay safe.
Thank you.
Thank you. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.