CSP Inc. Q2 2023 Earnings Call
Good morning, everybody and welcome to C. S. P. I second quarter fiscal year 'twenty to 'twenty three results conference call. At this time, all participants are in a listen only mode.
<unk> session will fall followed a formal presentation if anyone should require operator assistance during the conference. Please press star zero on your phone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Mr.
Mr. Michael <unk> you may begin.
Thank you Jade Hello, everyone and thank you for joining us to review C. S. P is fiscal 2023 second quarter results, which ended March 31 2023.
With me on the call today is Victor Dillow, though C. S. P is 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 C. S. P is management on today's call regarding the company's business that are not historical facts may be forward looking statements as determined is identified in federal securities laws.
Words may will expect believe anticipate project plan intend estimate and continue as well as similar expressions are intended to identify forward looking statements.
We're looking statements should not be read as a guarantee of future performance or results.
The company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to shovel.
Guarantees 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.
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 quarterly reports on Form 10-Q filed with 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 takes 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.
I'll turn the call over to Victor <unk>, Chief Executive Officer Victor. Please go ahead.
Thanks, Michael and good morning, everyone. Today, we reported our third consecutive quarter of solid growth with revenue up 11% and earnings per share more than doubled from a year ago. The growth is a direct result of our team's successful effort to build both our recurring revenue customer base and a pipe.
By another million dollar plus business opportunities. Despite an increase in competitive operating environment for the customer's budget dollars the demand for our services and solutions resulted in another quarter.
And backlog of more than $22 million and we again increased our gross margins from a year ago fiscal second quarter.
We are at the midway point of our fiscal year, we believe that we will be able to generate positive results during the third and fourth fiscal quarters.
Once again, our technology solution business continued to lead the way with sales growth of 9%. Meanwhile, the high performance products for H B.
Revenue continued its strong assigned with a growth of 29% compared to a year ago fiscal second quarter.
Of particular note for this segment the ARIA product line is gaining traction with customers around the world We have had.
<unk> continually growing are our customers and our team has more than doubled the pipeline for this product.
We could potentially expand our marketing capabilities.
For this product product line in key international markets through the establishment of a reseller agreements, we have signed an Australian MSP and we have multiple deals that are underway.
Turning to some of the financial results our fiscal second quarter marks the beginning of the budget year for most of our customers and therefore can be challenging period for our company. Despite this historic seasonality total revenue for the period June 13th Gucci $13 3 million from 12.0 million Inc.
In a year.
The Gulf fiscal second quarter.
Business revenue totaled $11 8 million.
You bet.
The operation continues to be the driver by our customers and increased use of our implementation installation and training capabilities.
Our H P. P revenues were $1 5 million compared to $1 1 million in the year ago fiscal second quarter and were driven by <unk> and ARIA. The area customer base continues to grow and the pipeline is at an all time high.
During the quarter, we continued to manage the business in a cost efficient high.
Churn manner gross visor percentage over the period year ago period of 35% continued to expand and reached 38%, while we gain leverage from our operations to generate net income of 321000 or seven cents per common share.
While we continue to invest in our programs to build a long term growth.
Once again paid a cash dividend to shareholders of four cents per share a weinstein increase from prior quarter, we continue to manage our balance sheet to yell at the optimal returns.
We continue to achieve record setting levels of pipeline for most of our product lines and the opportunities ahead of us continue to expand our focus over the past few years.
Of offering different differentiated value enhanced solutions for challenges faced by our customers as well as an increasing effective.
Go to market strategy are the key factors to our growth.
At the same time, we continue to invest in our top notch engineering team and our R&D efforts to enhance the existing offering as well as create new solutions for our customers.
Are you is an example of the zelle from our development efforts and we are working to create others and a not so distant future.
Cyber security space, new threats and challenges faced by our customers all the time and our solutions are providing to.
Two the adaptable flexible answers said those threats.
While we have strong momentum in our opportunities in the marketplace continue to expand we do have hurdles to overcome to realize that full potential the supply chain continues to be a hurdle and although we have created workarounds, but most of these hurdles.
Gaining acceptance for these solutions offer require extensive review by our customers, which delayed shipments our customers continues to remain loyal to our solutions often because of our most effective cost efficient answers to these needs.
At the same time, our team constantly interact with our customers to keep them abreast of supply of timelines and options. The supply chain issue continues to improve by slower than we would like it requires constant attention by our team.
At the top of the call I mentioned, an increase in competitive operating environment for the clients' budget dollars. The situation. It is being driven by customer needs to maximize the return from their technology investments.
Across our product lines, we were able to meet this challenge quite effectively how over the internal process followed by many of our clients is resulting in an extended timeframes for order decisions, which in turn is it extending decisions on several major opportunities we are pursuing.
Another challenge for US has been the absence of any significant recent revenue from the cruise line industry. We are beginning to see signs that this drought is starting to end as we are currently retrofitting one large ship and several other ships that we will.
Could begin work on during the next couple of quarters.
To summarize we have generate substantial growth during the first half of the fiscal year and.
And if we execute in the market cooperates, we believe the second half of the fiscal year performance will be even better with that I will now ask Gary to provide a brief overview of the fiscal first quarter financial performance.
Gary Thanks, Nick Thanks Victor.
As Victor mentioned in his opening remarks.
A solid fiscal second quarter.
<unk> to achieve our operating and financial objectives.
We reported revenue of $13 $3 million.
And an 11% increase compared to the year ago physical second quarter.
Further validates our growth strategy.
We reported gross profit of $5 million or <unk> 37, 6% of sales compared to $4 2 million or 35, 1% of sales in the year ago fiscal second quarter.
Our engineering and development expenses for the fiscal second quarter were $585000 compared to $717000 in the year ago period. As we discussed previously the increase is primarily due to higher personnel costs, which.
Includes the outside consultants.
Our SG&A expenses in Q2 were $3 $9 million.
<unk> to three $5 million in the year ago quarter due to increased payroll and variable compensation based on higher year over year gross profit.
We reported net income of $321000 in the fiscal second quarter, our diluted earnings per share of seven cents per share compared to net income of $156000 or diluted earnings per share of <unk> for the fiscal second for <unk>.
So 2020 two's second quarter as Victor mentioned earlier this represents a more than double increase in our earnings per share.
The cash and cash equivalents was $13 $3 million as of March 31, 2023.
Our cash and cash equivalents were approximately $10 $7 million lower than.
Cash and requests equivalents as compared to the September 32022 level, primarily due to moving $3 5 million of cash to short term held to maturity investments during the second quarter fiscal 2023, and a large vendor paint.
<unk> made in the second quarter and a large financing customers sale that occurred in the first quarter of fiscal year 2023.
And accounts receivable, there is $8 7 million with payment terms, which exceed one year.
We will be paid <unk> six.
$6 million and $6 $2 million in the third and fourth quarter of the fiscal year.
We believe this is only possible because of the prudent management of our resources, which allows us to implement our multiyear growth.
Strategy of transforming into a cyber security wireless and managed service.
<unk>.
I also want to highlight that the board of directors approved an increase in the quarterly dividend to <unk> <unk> per share payable on June 13, 2023 to shareholders of record on the close of business on May 25 2023.
With that I will turn it over to the operator to take your questions.
Thank you Gary ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your phone keypad now a confirmation tone will indicate your line is in the queue. You May press star two if you would like to remove your question from Nicky.
Anyone using speaker equipment, it may be necessary to pick up your device before pressing the keys.
One amendment Waspy poll for questions.
Thank you. Your first question is coming from Joseph notice of sovereign investments. Joseph Your line is life. Thank you. Good morning, gentlemen, how are you today.
Good morning, Joe.
Okay, well, let me first congratulate you guys on the press release from last week.
<unk> announcement of their customer the Miami Dolphins, and the new customer with Oh, well I guess, it's a kronos is that at the <unk> The software company that you're you're.
Youre tied up with.
Yes.
A high profile customer in the area.
I assume that doesn't hurt our publicity from the local the local hit we're trying to recruit.
Outside of outside of them.
Yeah. That's that's part of the goal is with the announcement you know, it's a three year contract with them. So we're looking forward to developing a strong relationship over the next couple of years.
I noticed in looking up across that they have.
A pretty dynamic sports program.
Quite a few professional sports teams are under contract and I was wondering if.
Question from our market area from basically Tampa Bay down we've there's quite a few sports data I'm wondering if we're in contact with any of the other teams.
In the area.
These conversations happening okay, great I can't I can't say more than that but there are other things going on got it alright, and the crews into you did say well they expect some pretty good publicity of late about the bookings in the cruise industry.
You're saying it hasn't yet.
Great degree helped us.
But we're still talking about it is that basically what you're saying well yeah. They have actually started spending money because we haven't done a ship in a long time and we are we were you know we completed one in Spain.
The last week or the week before I can't remember now and Ah.
There's 11 more we're talking about so you know if we get all those it'll be a good kick start to to hopefully more you know after that but.
They are moving slow, but we are moving which is good news well like I said I've read at least the press releases of late that the bookings have been pretty strong so I mean.
Hopefully there there's still watching every dollar they they've been hit so hard right now that that budget to still I don't think of what they used to be no I understand I'm, just saying that at least from a positive standpoint is that bookings yeah. Good shape.
Now a couple of quick so from the cash standpoint, you're talking 13 points from cash and cash equivalents.
So youre also saying that there were $3 5 million moved to short term investments Oh, what do we what do we consider short term is it more than six months or six months six months or three months 90 days.
90 days ago EBIT.
Okay. So anything that's 90 days and above would be in that category in the short term our held to maturity investments.
Correct.
Correct.
<unk>.
From your year.
R&D front.
You say it was 585000 for the quarter, that's what the R&D spending was.
858.
Our 858.
Yes, so it's higher than that that's why isn't it isn't a lora now 858 versus 717 last year.
Right.
And your year end letter you mentioned about 10 area customers and of course in this press release, you indicated 14.
And am I correct in the assumption.
In your press release, you talked about the pipeline there.
Multimillion dollar potential opportunities are.
Or that relies it falls into the area.
Aerie area basket, let's put it that way.
No. There there are both T S N area, but.
Scenario okay.
Yeah.
And anything new on the video front I mean, I know you've had contacts with them in their some of their customers in the past and I I didn't know if there was any progress or any.
Discussions going on with <unk> and are there any of their base.
There is a different department, we started talking to recently seems promising onto have stopped but again.
And those worlds things move really really slow when you're trying to get integrated into our product line of theirs.
And at least there's some there are some discussions it's not dead in the water, let's put it that way Oh no no no not at all Okay, alright, well, that's all I have thanks, a lot and again, congratulations moving Florida, certainly congratulations that I guess I really congratulations to be on the dividend.
Thanks.
Okay.
[laughter].
Thank you very much. Your next question is coming from Brett Davidson, who is a private investor Brett Your line is life.
Good morning.
I have a question about the long term receivable is that all with that one large customer from Q4.
There's.
At least.
A couple of others too.
Primarily with one customer.
Got it.
And do you have a ballpark you could give me as to when that Ah <unk>.
Resolves itself or is that gonna be a continuing our story over the next couple of years or we're going to continue to add to that.
Well, we keep hoping it continues.
Yeah, Yeah yeah.
We hope it continues you you know there that we've been doing this with them for.
Probably about four years now maybe five.
As things come up you know it keeps us pretty sticky inside the account. So we're hoping that it does continue.
Moving forward nicely.
And you know the terms are agreeable on that that you know, we're capturing the interest rate increases and.
It's worth an outdoor or damage or.
Absolutely absolutely.
Absolutely.
The other thing I wanted to get was more of a.
Qualitative you didn't talk about the supply chain holding things up and I know, there's a 22 million backlog.
You know absent absence of supply chain what portion of that do you think you could ship in the in the next quarter absence of supply chain hiccups.
Well its all supply chain hiccups really right because if you know the majority of his supply chain. It just sometimes you you know if the orders say a million dollars you might get $800000 worth of Gaea right away and then the other 200000 could be on backhaul backlog for six months and so you can't complete the project.
Until it all comes in.
So it's all it's unpredictable that's where some of the frustrating.
Points are.
Right.
And this is still equipment like Florida walls and routers.
Yeah, a lot of firewalls, you know so you know servers.
It's a mixture of a little bit of everything.
How much of it would you.
Estimated.
You know chips for all of your products.
Or is it right now.
Yeah, it's resolved itself at this point.
Hello, Nice that's good to hear one thing moving in a positive direction.
And from Uh Huh.
Hiring perspective.
Have you guys said you know.
With with some of the pressures in some of the other tech industry Giants is.
Is it work your advantage all in.
So Irene goes.
Florida is a hotbed right. So a lot of people are moving down.
So it hasn't really.
Yes.
There's people out there, but it's still very competitive on.
The amount we have to pay for salaries and bonuses out there to get the top.
Top people.
That are available.
Interesting.
Alright, well, that's all I got thanks, a lot guys and you guys take care will talk to you next quarter.
You got it thanks have a great day.
Thank you very much just as a reminder, if anyone still has a question or a comment. Please press star one on your phone keypad.
Okay. It doesn't appear that we have any more questions I'm going to hand back over to Victor for any closing remarks.
Thank you as always I want to thank our shareholders for your continued interest and support we have now reported three consecutive quarters of significant growth and the momentum we are continuing to experience in the current quarter excites us for the remainder of the we have a solid revenue conversion a building pipeline and product and service.
Profiles that are generating a favorable gross margins, Gary and I look forward to sharing our progress in fiscal 'twenty three.
Third quarter operating results in August until then be well stay safe.
Thank you.
Thank you.
Thank you very much. This does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Okay.