Q3 2024 CSP Inc Earnings Call
Speaker Change: Hyun A Lee Please don't eat watermelons. mysticShelz Pink Deutsch Thanks for watching!
Operator: Joseph Nerges, Gary Levine, Victor Dellovo, Brett Davidson, Mike Price, John Crotty, John Crotty, John Crotty, John Crotty, [inaudible] Good morning, everyone, and welcome to the CSPI's third quarter fiscal year 2024 conference call. At this time, all participants have been placed on a listen-only mode, and we'll open the floor for your questions and comments after It is now my pleasure to turn the floor over to your host, Michael Polyviou. Sir, the field floor is yours.
Speaker Change: Good morning, everyone, and welcome to the CSPI's third quarter fiscal year 2024 conference call.
Speaker Change: At this time, all participants have been placed on a listen-only mode, and we'll open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Michael Polyviou. Sir, the field floor is yours.
Michael Polyviou: Thank you, Matt. Hello, everyone. And thank you for joining us to review CFPI's fiscal 2024 third quarter results, which ended June 30, 2020. With me on the call today are Victor Dellovo, CSPI's Chief Executive Officer, and Gary Levine, CSPI's Chief Financial Officer. After Victor and Gary conclude their opening remarks, we'll then open the call for questions. During the Q&A session, we ask participants to limit themselves to one question and then one follow-up question, and then re-queue if they have additional questions.
Michael Polyviou: Thank you, Matt. Hello, everyone, and thank you for joining us to review CFPI's fiscal 2024 third quarter results, which ended June 30, 2021.
Operator: Data made by CSPI's management in today's call regarding the company's business that are not historical facts may be forward-looking statements as the 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. Photo Lookup Statements should not be meant as a guarantee of future performance or results.
Speaker Change: After Victor and Gary conclude their opening remarks, we'll then open the call for questions. During the Q&A session, we ask participants to limit themselves to one question per question.
Michael Polyviou: and then one follow-up question and then re-queue the additional questions.
Speaker Change: Statements made by CSPI's management in today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified.
Speaker Change: and Federal Securities Laws. The words may, will expect the lead anticipate Project Plan in 10 estimates.
Speaker Change: and continue, as well as similar expressions are intended to identify a photo of a statement.
Speaker Change: The overlook of statements should not be meant as a guarantee of future performance or results.
Speaker Change: The 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 the projections upon which the segmented statements are based.
Speaker Change: Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the risk assessment of the annual report in Form 10-K and the quarterly report on Form 10-Q5 with the Securities and Exchange Commission.
Speaker Change: Overlooker statements are based on information available at the time those statements are made and management's good faith belief as of the time with respect to future events.
Speaker Change: All of the overlooked statements are qualified in their entirety by this cautionary statement and CSPI undertakes no obligation to publicly revise or update.
Speaker Change: and he followed up with a statement, whether it was new information, future events or otherwise after the date thereof. With that, I'll turn the call over to Victor Dellovo, Chief Executive Officer.
Operator: The 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 the projections upon which the segmented statements are based. Factors that may affect the company's results include, but are not limited to, the risks and alternatives discussed in the risk assessment of the annual report in Form 10-K and the quarterly report in Form 10-Q via the Overlook of Strategies and Exchange Commission. Overlook of 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.
Michael Polyviou: All the forward-looking statements are qualified in their entirety by this cautionary statement, and CSPI 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 Dellovo, Chief Executive Officer. Vic, please go ahead. Thanks, Michael. And good morning, everyone.
Vic: Vic, please go ahead.
Victor Dellovo: Earlier this morning, we announced our fiscal 2024 third quarter results. And with the supply chain issue well past, I'm pleased to report our business has returned to a more normalized revenue run rate. And we have focused on driving our higher-margin business while building the required infrastructure to drive the success of the emerging AZT product line. We have been able to consistently grow the service business, and fiscal third quarter was no exception as service revenue increased 10% and contributed 150 basis points improvement to the gross margin percentage over the prior year level.
Victor Dellovo: Thanks, Michael, and good morning, everyone.
Victor Dellovo: Early this morning we announced our fiscal 2024 third quarter results and with the supply chain issue well passed I'm pleased to report our business has returned to a more normalized revenue run rate And we have focused on driving our higher margin business while building the required infrastructure to drive the success of the emerging AZT product
Victor Dellovo: Protect product line
Victor Dellovo: We have been able to consistently grow the service business and fiscal third quarter with no exception as the service revenue increased 10 percent and contributed 150 basis points improvement to the gross margin percentage over the prior year level.
Victor Dellovo: The AZT Protect offering has the capability to dramatically reshape our high-performance product business and our entire company. Customer enthusiasm for the product line remains high, and the team is generating leads and building an attractive pipeline. Moreover, we are continuing to extend the brand awareness of AZT products through multiple awards, including being named winner in the Application Security category at the 2024 Fortress Cybersecurity Award, presented by Business Intelligence. Overall, the team has done an incredible job as this was the ninth major industry award for the Tech since the launch of the following follow success at the Cybersecurity Excellence Award and the Global Infrastructure Award at RSA in the Globey Award for Cybersecurity. During the quarter, we also signed some small mid-tier manufacturing customers located in the Midwest.
Victor Dellovo: The EZT Protect offering has the capability to dramatically reshape our high-performance product business and our entire company.
Victor Dellovo: Customer enthusiasm for the product line remains high, and the team is generating leads and building an attractive pipeline. Moreover, we are continuing to extend the brand awareness of AZT products through multiple awards, including being named winner
Victor Dellovo: in the application security category at the 2024 Fortress Cybersecurity Award presented by Business Intelligence Group.
Victor Dellovo: Overall, the team has done an incredible job as this was the ninth major industry award
Victor Dellovo: since the launch of the Follow Success at the Cybersecurity Excellence Award, the Global Infrasec Award at RSA, and the GLOBE Award for Cybersecurity.
Victor Dellovo: During the quarter we also signed some small mid-tier manufacturing customers located in the Midwest. We have many other similar opportunities that are being pursued. To ensure we maintain the momentum and remain focused, we recently hired Greg
Victor Dellovo: We have many other similar opportunities that are being pursued. To ensure we maintain the momentum and remain focused, we recently hired Greg Fisher, an experienced 20-year OT industry sales veteran, as VP of sales to head up the AZT product, Protect Business. Throughout his career, Greg has consistently driven sales and is known for building and training high-performance teams in complex solution sales and mentoring them to achieve ambitious goals. Greg is already transforming our sales team, and in just a few weeks, his impact is being felt throughout the organization.
Victor Dellovo: While a multi-pronged sales strategy, including gauging with 4 to 500 companies, Greg immediately went to ensure we have the right sales team to focus on small to mid-tier enterprises because of the short of sales like We will continue to pursue larger opportunities directly or through our partners despite the longer sales cycle because each one can represent multi-million dollar contract opportunities, like the one we signed in the second quarter, which helped AZT maintain awareness in the market.
Speaker Change: Fisher, an experienced 20-year OT industry sales veteran as VP of sales to head up the AZT product Protect Business. Throughout his career, Greg has consistently driven sales and is known for building and training high-performance teams.
Speaker Change: in a complex solution sales and mentoring them to achieve ambitious goals.
Speaker Change: Greg is already transforming our sales team and in just a few weeks his impact is being felt throughout the organization.
Speaker Change: While our multi-pronged sales strategy includes engaging with Fortune 500 companies, Gregg's immediate goal is to ensure we have the right sales team to focus on small to mid-tier enterprise because of the shorter sales cycle.
Speaker Change: We will continue to pursue larger opportunities directly or through our partners, despite the longer sales cycle, because each one can represent multi-million dollar contract opportunities, like the one we signed in the second quarter, which helped AZT protect awareness in the market.
Victor Dellovo: Greg is also helping the team prepare for several upcoming events, such as the American Petroleum Institute conference taking place in. This conference is the only cybersecurity conference dedicated to the oil and natural gas industry and has a loyal and dedicated attendee base. As we engage with the largest oil company in the world in the water treatment plants, the process to evaluate AZT in these large oil and water treatments has taken months.
Speaker Change: Greg is also helping the team prepare for several upcoming events such as the American Petroleum Institute conference taking place in Houston.
Greg Fisher: This conference is the only cybersecurity conference dedicated to oil and natural gas industry and has a loyal and dedicated attendee base.
Greg Fisher: As we engage with the largest oil company in the world in the water treatment plants, the process to evaluate AZT in these large oil and water treatments have taken months.
Greg Fisher: Just to get set up in this system to do a proof of concept, or a POC, has taken four to six months. The team will also attend the Industry Industrial Control System Cybersecurity Conference being held in Atlanta.
Victor Dellovo: Just to get set up in this system to do a proof of concept or a POC has taken four to six months. The team will also attend the Industry Industrial Control System Cyber Security Conference being held in Atlanta. This conference is the largest and longest running event series focused on industrial cybersecurity.
Greg Fisher: This conference is the largest and longest running event series focused on industrial cybersecurity.
Victor Dellovo: Since 2002, the conference has gathered ICS cybersecurity stakeholders across various industries and attracts operations and control engineers, IT government vendors, and academics. We believe these and other conferences are a ripe opportunity for us to further expand our brand presence within the OT market. We have also successfully executed our AZT Protect Partnership Program over the past few months, and re-entered a new integration partnership with four scale technologies, which are office-based comprehensive asset intelligence and control across IT, OT, and IoT environments. Trusted by Fortune 100 organizations, government agencies, and large enterprises for over two decades, Forescout serves as a cornerstone for managing cyber risk, ensuring compliance, and mitigating threats.
Greg Fisher: Since 2002, the conference has gathered ICS cybersecurity stakeholders across various industries and attracts operations and control engineers, IT, government, vendors, and academics.
Greg Fisher: We believe these and other conferences are a ripe opportunity for further expand our brand presence within the OT marketplace.
Greg Fisher: We have also successfully executed our AZT Protect Partnership Program over the past few months.
Greg Fisher: We entered a new integration partnership with Forescout Technologies, which offers comprehensive asset intelligence and control.
Speaker Change: across IT, OT, and IoT environments, trusted by Fortune 100 organizations, government agencies, and large enterprises for over two decades. Forescout serves as a cornerstone for managing cyber risk, ensuring compliance, and mitigating threats.
Victor Dellovo: This full integration will take some time, but we believe the opportunity is there. In addition, eBRICS, a managed security service provider, performed a lengthy in-house red team evaluation of AZT Protect prior to adding ARIA to its existing portfolio of technology partners. Hebricks is a leading provider of innovative cyber security services.
Speaker Change: This full integration will take some time, but we believe the opportunity can be huge.
Speaker Change: In addition, EBRICS, a managed security service provider, performed a lengthy in-house red team evaluation of AZT Protect prior to adding ARIA to its existing portfolio of technology partners.
Speaker Change: EBRICS is a leading provider of innovative cybersecurity services and solutions.
Victor Dellovo: Commercial as well as government and public sector customers in North America, EMEA, and APAC. Lastly, Worldwide Technology, a large global reseller of IT and cybersecurity solutions, will supply the award-winning AZT Protect solutions to its customers. I believe this approach ensures we are using our resources and those of our partners to significantly raise the profile of AZT's offering and build revenue. In only three weeks, Greg has currently signed multiple resellers, and Greg is confident we can increase the number of OT-focused resellers by December to over a dozen. Locations of these resellers are all over the world, including Chile, Peru, Brazil, Morocco, Norway, India, Australia, and Iberia.
Speaker Change: as well as government and public sector customers in North America, EMEA, and APAC regions.
Speaker Change: Lastly, Worldwide Technology, a large global reseller of IT and cybersecurity solutions, will supply the award-winning AZT Protect solutions to its customers.
Speaker Change: I believe this approach ensures we are using our resources and those of our partners to significantly raise the profile of AZT offering and build revenue opportunities.
Speaker Change: In only three weeks, Greg has currently signed multiple resellers, and Greg is confident we can increase the number of OT-focused resellers by December to over a dozen.
Greg Fisher: Locations of these resellers are all over the world including Chile, Peru, Brazil, Morocco, Norway, India, Australia, and Iberia.
Victor Dellovo: Our largest partnership is Rockwell, and we have recently been selected to update the industry on how to measure the cybersecurity risk facing industrial operations and how to guide against them at the Rockwell Automation Fair in November. The event is being held in Anaheim, California, and Gary Selfel, Vice President and General Manager of the High Performance Products Segment, will be guest speaking. He will be presenting an in-depth review of the latest attacks techniques and their financial impact.
Greg Fisher: Our largest partnership is Rockwell and we are recent we have recently been selected to
Greg Fisher: update the industry on how to measure the cybersecurity risk facing industrial operations and how to guide against them at the Rockwell Automation Fair in November.
Greg Fisher: The event is being held in Anaheim, California, and Gary Selfel, Vice President and General Manager of High Performance Products Segment, will be guest speaker.
Speaker Change: who will be presenting an in-depth review of the latest attacks techniques in their financial impact.
Victor Dellovo: Gary will outline how insurance providers are measuring the risk of how companies can comply with the new insurance and regulatory requirements and will share a range of use cases to demonstrate how companies can apply reduction techniques, measurable risk, including a high-profile ransomware attack on Merck, which resulted in a $1.4 billion impact and led to a lengthy legal battle with its insurers to recover losses.
Speaker Change: Gary will outline how insurance providers are measuring the risk of how companies can comply with the new insurance and regulatory Requirements and will share a range of use cases to demonstrate how companies can apply reduction techniques to
Speaker Change: Lauren Volcki, Assoc. Mag., Pride Heart Foundation President and Co-Founder played a critical role in essentially reversing this situation and finding treatments to better understand the cause and hopefully to stay informed we continue to fight hard to fight the pandemic and plan for the future
Victor Dellovo: Working with Rockwell, together we will be delivering new solutions to manufacturing environments that complement existing past, Active Defense, pick up where they left off. Before I review the technology solution, TS Business, I want to spend a couple of minutes highlighting the recent CrowdStrike-induced window outage and the opportunity it presents for AZT. While the target market for AZT Protect was initially focused on operational technology or OT, it was always our intent to engage the information technology or IT market professionals, and we had already commenced discussions with IT professionals.
Speaker Change: Working with Rockwell, together we will be delivering new solutions to manufacturing environments that complement existing passive and active defense.
Speaker Change: and pick up what they miss.
Speaker Change: Before I review the technology solution TS business, I want to spend a couple minutes highlighting the recent CrowdStrike
Victor Dellovo: So the timing of the outage benefits our efforts. We believe had AZT Protect been previously deployed, the outage would have been controlled at the corporate level. It has been estimated that the cost of the outage is in the billions of dollars. An adult airline CEO has said it costs his company $500 million.
Speaker Change: induced window outage in the opportunity it presents for AZT. While the target market for AZT Protect was initially focused on operational technology or OT, it was always our intent to engage the information technology or IT market professionals.
Speaker Change: We've had already commenced discussion with IT professionals, so the timing of the outage was a benefit to our efforts. We believe...
Speaker Change: Had AZT Protect been previously deployed, the outage would have been controlled at the corporate level. It has been estimated that the cost of the outage is in the billions of dollars an adult airline CEO has said cost his company 500 million.
Victor Dellovo: We believe companies using ACG protection capability can prevent both malicious code as well as flawed updating from taking critical systems down. We've proven this capability in the field under real-life operational conditions. We can ensure that the untested updates do not become active on the systems, helping corporations and organizations at all levels avoid another CrowdStrike type of disaster. Become the gnome for IT applications and cybersecurity vendors to send updates directly to their applications. Unfortunately, as a CrowdStrike event has demonstrated, a few customers test these updates and just allow them to update automatically.
Speaker Change: We believe companies using ACG protection capability can prevent both malicious code as well as flawed updating from taking critical systems down. We've proven this capability in the field under real life operational circumstances.
Speaker Change: We can ensure that the untested updates do not become active on the systems, helping corporations and organizations at all levels avoid another CrowdStrike type of disaster.
Speaker Change: SBCC
Speaker Change: Become the gnome for IT applications and cybersecurity vendors to send updates directly to their applications. Unfortunately, as a CrowdStrike event has demonstrated, few customers test these updates.
Victor Dellovo: Whether intentional or not, untested supply chain updates can wreak more havoc on a critical system than most cyber attacks. If an update to the system puts lives in danger due to an outage, it should not be deployed without some form of verification test. Same goes for servers running any critical business processes. The technology solution of TS business continues to perform well and generate the majority of the quarter's revenue. The success of the TS continues to be driven by our customers' increased use of implementation, installation, and training. We continue to add new MSP customers, and we are currently awaiting decisions on several big orders that, if they go, in our favor, could positively impact our results. Unknown Speaker 2025.
Speaker Change: and just allow them to...
Speaker Change: update automatically. Whether intentional or not, untested supply chain updates can wreak more havoc on a critical system than most cyber attacks.
Speaker Change: If an update to the system puts lives in danger due to the outage it should not be deployed without some form of verification test. Same goes for servers running any critical business process.
Speaker Change: The technology solution of TS business continues to perform well and generate the majority of the quarter's revenue. The success of the TS continues to be driven by our customers' increased use of implementation, installation, and training capabilities.
Speaker Change: We continue to add new MSP customers and we are currently awaiting decisions on several big orders that if they go
Speaker Change: in our favor could positively impact our results in fiscal 2025 and beyond.
Victor Dellovo: The activity is encouraging, and to add more color, we are in the process of implementing a wireless conversion at over 70 to 80 locations of a global hospitality company. This work will continue through 2025. We also are working with one of the largest freight operators specializing in containerized ocean exports serving numerous ports worldwide, and we will double the number of container ships for which we are performing equipment conversions, and continue to be their M.S. for each and every share. We also continue to generate higher levels of interest in our UCAS offer.
Speaker Change: The activity is encouraging and to add more color, we are in the process of implementing a wireless conversion.
Speaker Change: to over 70 to 80 locations of a global hospitality company. This work will continue through 2025.
Speaker Change: We also are working with one of the largest freight operators specializing in containerized ocean exports serving numerous ports worldwide, and we will be double the number of container ships for which we are performing equipment conversions.
Speaker Change: will continue to be their MSP for each and every ship. We also continue to generate higher levels of interest in our UCAS offering.
Victor Dellovo: And during the current fiscal fourth quarter, we have already signed several new customers. The momentum with UCAS is building, and we expect to enter the new fiscal year with an annual revenue run rate that is more than double what it was entering in fiscal year. In summary, the strength of the TS business has allowed us to fund and develop AZT Protect. The TS business has three lines of recurring revenue: UCAS, the cloud practice, and the managed service practice.
Speaker Change: And during the current fiscal fourth quarter, we already signed several new customers. The momentum with the UCAS is building, and we expect to enter the new fiscal year with an annual revenue run rate that is more than double what it was in entering in fiscal 2024.
Speaker Change: In summary, the strength of the TS business has allowed us to fund and develop AZT Protect. The TS business has three lines of recurring revenue, the UCAS, the cloud practice and managed service practice.
Victor Dellovo: This was a slow, methodical process over the last few years, but we now have all three generating consistent profits. We are building the ACT practice with the same methodology and determination as we did with the other lines.
Speaker Change: This was a slow methodical process over the last few years, but we now have all three generating consistent profits. We are building the ACT practice with the same methodology and determination as we did with the other lines of business.
Victor Dellovo: So I'm highly confident we will be generating consistent profits in the near future. Today, we are in the process of deploying additional resources to ensure we have organizational infrastructure to support the business in 2025 and thereafter. AZT Protect has the potential to revolutionize how OT professionals approach their responsibilities.
Speaker Change: So, I'm highly confident we will be generating consistent profits in the near future.
Speaker Change: Today we are in the process of deploying additional resources to ensure we have organizational infrastructure to support the business in 2025 and thereafter.
Speaker Change: AZT Protect has the potential to revolutionize how our OT professionals approach their responsibilities.
Victor Dellovo: Recent events have reinforced that IT professionals also need to be vigilant and ensure their business is not compromised, whether from external threats or third party software. Our commitment to develop and innovate high-margin products and services has enabled us to expand our gross margins and grow our cash balance to a near record level. With that, I will now ask Gary to provide a brief overview of the fiscal third quarter financial performance.
Speaker Change: and recent events reinforce that IT professionals also need to be vigilant and ensure their business are not compromised, whether from external threats or third-party software updates.
Speaker Change: Our commitment to develop, innovate, and high-margin products and services has enabled us to expand our gross margins and grow our cash balance to a near-record level.
Gary Levine: Thanks, Victor. For the third quarter ended June 30, we reported revenues of $13.1 million, compared to revenues of $17.7 million for the fiscal third quarter ended June 30, 2023. I want to point out that in the fiscal third quarter of last year, we converted a sizable portion of backlog to revenue, as the supply chain issues had eased, and we were able to get key components to complete and ship customer orders. As Victor said earlier, we have returned to a more normalized business environment.
Speaker Change: With that, I will now ask Gary to provide a brief overview of the fiscal third quarter financial performance.
Speaker Change: Gary
Gary Selfel: Thanks, Victor. For the third quarter, ended June 30th, we reported revenues of $13.1 million dollars.
Gary Selfel: compared to revenue of $17.7 million for the fiscal third quarter ended June 30, 2023.
Speaker Change: I want to point out that a year ago, fiscal third quarter, we converted a sizable portion of backlog to revenue as the supply chain issues had eased and we were able to get key components to complete and ship customer orders.
Speaker Change: As Victor said earlier, we have returned to a more normalized business environment. In fact, revenue is relatively flat compared to the past.
Gary Levine: In fact, revenue is relatively flat compared to the 2024 fiscal second quarter; gross profit for the three months ended June 30, 2024, was $4.6 million or 35% of sales, compared to $5.9 million or 33.5% of sales, representing a 150 basis point gross margin percentage improvement. Despite the lower year over year revenue, as higher-margin services revenue fueled the improvement. For the third quarter, our engineering and development expenses were $734,000 compared to $741,000.
Victor Dellovo: 2024 fiscal second quarter.
Victor Dellovo: Gross profit for the three months ended June 30th, 2024 was $4.6 million or 35% of sales.
Speaker Change: compared to 5.9 million or 33.5% of sales.
Speaker Change: representing a hundred and fifty basis point gross margin percentage improvement despite the lower year over year revenue as higher margin services revenue fueled the improvement.
Speaker Change: For the third quarter, our engineering and development expenses were $734,000 compared to $741,000.
Speaker Change: Our SG&A costs include continuing investment required to build out the AZT sales support and marketing.
Speaker Change: and the amounts were $4.6 million for both fiscal years.
Gary Levine: Our SG&A costs include continuing investment required to build out the AZT sales, support, and marketing, were and know. Amounts worth 4.6 million for both physical years. For the fiscal third quarter, we reported a net loss of $185,000 or two cents per common share compared to a net income of 2.5 million or 26 cents per diluted common share for the fiscal third quarter ended June 30, 2023. In the prior year, our tax benefit was 1.7 million for the fiscal third quarter, primarily for the release of the valuation allowance against our deferred tax asset. For the third quarter, we generated operating cash flow of $
Speaker Change: For the fiscal third quarter, we reported a net loss of $185,000, or $0.02 per common share, compared to a net income of $2.5 million.
Speaker Change: earned $0.26 per diluted common share, but the fiscal third quarter ended June 30, 2023.
Speaker Change: In the prior year, our tax benefit was $1.7 million for the fiscal third quarter, primarily for the release of the valuation allowance against our deferred tax asset.
Gary Levine: And as of June 30, 2024, we had cash and cash equivalents of $28.9 million, compared to $13.9 million in the year ago fiscal third quarter and $25.2 million at the end of our 2023 fiscal year. We believe that the continued success of the TS business and our ability to focus on selling higher-margin products and services gives us the flexibility to leverage our resources to execute a multi-pronged sales strategy to target small, medium, and large enterprises for AZT Protect. During the fiscal third quarter of 2024, the company repurchased 4800 shares for a total cost of $70,000.
Speaker Change: For the third quarter, we generated operating cash flow of $2.4 million.
Speaker Change: And as of June 30, 2024, we had cash and cash equivalents of $28.9 million compared to $13.9 million in the year-ago fiscal third quarter.
Speaker Change: and $25.2 million at the end of our 2023 fiscal year.
Speaker Change: We believe that the continued success of the TS business, our ability to focus on selling higher margin,
Speaker Change: products and services gives us the flexibility to leverage our resources to execute the multi-pronged sales strategy to target small, medium, and large enterprises for AZT Protect.
Speaker Change: During the fiscal third quarter 2024, the company repurchased 4,800 shares for a total cost of $70,000. We currently have 9.7 million shares outstanding.
Gary Levine: We currently have 9.7 million shares outstanding. Lastly, the Board of Directors approved a quarterly dividend of three cents per share, payable on September 10th, 2024, to shareholders of record at the close of business on August 23rd, 2020. With that, I will turn it over to the operator to take your question. Certainly, everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.
Speaker Change: Lastly, the Board of Directors approved a quarterly dividend of three cents per share payable on September 10th, 2024 to shareholders of record on the close of business on August 23rd, 2024.
Speaker Change: With that, I will turn it over to the operator to take your questions.
Speaker Change: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.
Gary Levine: We do ask that while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question comes from Joseph Nerges from Segrin Investments. Your line is live. Good job, how are you doing?
Speaker Change: We do ask that while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments, please press Star 1 on your phone.
Speaker Change: Please hold while I poll for questions.
Speaker Change: Thank you for watching!
Speaker Change: Your first question comes from Joseph Nergis from Segrin Investments. Your line is live.
Operator: Well, first, congratulations on all the awards and, of course, the expansion of the partnership, some through some very large organizations. Also, positive going forward. My first question is really about the integration of AZT Protect into the Forescout platform. Where is that, and how long do you anticipate that to take?
Joseph Nergis: First, congratulations on all the awards that AZT Protect has gotten, and of course the expansion of the partnerships.
Joseph Nergis: and some very large organizations is also positive going forward.
Joseph Nergis: My first question is really on the integration of AZT Protect into the Forescout platform. Where is that and how long do you anticipate that to take?
Victor Dellovo: Um... We haven't started it yet. We're planning on, you know, they're doing planning sessions right now, and It could be anywhere from four to six months for that to be fully integrated into testing. Okay, so it's going to be obviously some from our end and some from their end, I'm assuming. Yeah, they've, you know, they've engaged a team that's been, you know, that we'll work with, you know, to build all the APIs.
Joseph Nergis: Um...
Speaker Change: We haven't started it yet. We're planning on, you know, they're doing planning sessions right now.
Speaker Change: It could be anywhere from four to six months for that to be fully integrated in testing.
Speaker Change: Okay, so we...
Speaker Change: It's going to be, obviously, some from our end and some from their end, I'm assuming. Yeah, they've engaged a team that we'll work with to build all the APIs.
Victor Dellovo: But it's a, you know, lengthy process. It's a lengthy process, right? You're dealing with these large companies, usually, even on the integration. And it could be faster. I'm just not exactly sure. I don't know how fast the team's going to be.
Speaker Change: But it's a, you know...
Speaker Change: It's a lengthy process, right? Dealing with these large companies as usually on the integration, and it could be faster. I'm just not exactly sure. I don't know how fast the team's going to be, and there's going to be a lot of testing that has to be done.
Victor Dellovo: And, you know, and how there's gonna be a lot of testing that has to be that we have to go through with them. So, you know, we're hoping it's faster, but we'll see. I'm not aware if they have any outside help. Are you unique in this in the fourth cup?
Speaker Change: that we have to go through with them. So, we're hoping it's faster, but we'll see.
Speaker Change: I'm not aware if they have any outside... Are you unique in this, in the Forest Cop? Do you know that, if you're unique in that, almost all their platform was either developed internally...
Victor Dellovo: Or do you know that almost all their platform was either developed internally or was via mergers where they've integrated other systems after they bought the company? Do you know if there were any other outside suppliers to their platform? Like, like, um, our case would be an outside.
Speaker Change: or via mergers where they've integrated other systems after they bought the company. Do you know if there are any other outside suppliers for their platform?
Speaker Change: Like our case would be, an outside support.
Victor Dellovo: I didn't ask the question, to be honest with you, when we met them, and we saw how happy we were that they saw how we could, you know, you know, they have a great product. And, you know, how we can complement that product and not cannibalize anything that they currently already have, right? Because they wouldn't want to compete, you know, products against each other, whether it was, I guess, whether it was another outside partner or something that they own internally, if we, you know, if we were doing the same thing, then I'm sure they want to sign this up. Well, I don't know of anything where they have a product specifically that stops an attack like AZT Protect would do, you know.
Speaker Change: I didn't ask the question to be honest with you. You know, when we met them and we started, we were, you know, pretty happy that they saw how we could...
Speaker Change: you know, you know, they have a great product and, you know, how we can compliment that product and not cannibalize anything that they currently already have, right, because they wouldn't want to competing.
Michael Polyviou: Good morning everyone and welcome to the CSPI's third quarter fiscal year 2024 conference call. At this time all participants have been placed on a listen only mode and we'll open the floor for your questions and comments after the presentation.
Speaker Change: you know, products against each other. Whether it was, I'm guessing, whether it was another outside partner or something that they own internally, if we, you know, if we were doing the same thing, then I'm sure they wouldn't have signed this up.
Michael Polyviou: It is now my pleasure to turn the floor over to your host, Michael Polyviou, sir the field floor is yours. Thank you Matt, hello everyone and thank you for joining us to review CSPI's physical 2024 third quarter results which ended June 30, 2024 with me on the call today is Victor Dellovo, CSPI's chief executive officer and Gary Levine, CSPI's chief initial officer. After Victor and Gary conclude their opening remarks, we'll then open the call for questions.
Speaker Change: I don't know of anything where they have a product that stops an attack like AZT Protect would do. Just another follow-up you're on with Rockwell. And of course with the debacle with the CrowdStrike faulty software download.
Victor Dellovo: Just another follow-up here on Rockwell, and of course, with the debacle with the CrowdStrike faulty software download, you, you, there's got to be a significant number of their clients, customers currently that were going through that problem. Do we know of anything? Have we gotten any update or any feel for what happened at Rockwell and via the cloud strike? Debacle, if you want to call.
Speaker Change: There's got to be a significant number of there.
Michael Polyviou: During the Q&A session, we have participants themselves to one question and then one follow-up question and then we cue at the additional questions. Statements made by CSPI's management, today's call regarding the company's business that are not historical facts maybe, our look at statements as terms identified and federal securities laws, the words may will expect the lead anticipate Project Plan intent estimate and continue as well as similar expressions are intended to identify our look at statements.
Speaker Change: clientele or customers that have been, that were affected, have to be in the OT environment because of such a dramatic amount of.
Speaker Change: People were affected, so I would assume that they have a number of customers currently that were going through that problem. Do we know of anything? Have we gotten any update or any feel for what happened at the Rockwell, via the Charles Brake debacle, if you want to call it that?
Michael Polyviou: Our look at statements should not be meant as a guarantee of future performance or result. The company cautions you that these statements reflect current accruations about the company's future performance or events in our subject to serve several uncertainties risk. In other influences, many of which are beyond the company's control that may influence the accuracy of the statements in the projections upon which the segment and statements are based. That is, it may affect the company's results include but are not limited to the risk of the uncertainties discussed in the risk factor session on the annual report form 10K and the quarterly report on form 10Q5 looks very easy and exchange commission. Our look at statements are based on information available at the time those statements are made and management's good faith believe as of the time with respect to future events.
Victor Dellovo: Yeah, they pointed us to work with their partners that sold the systems. And that's kind of what we're doing; we're building a food chain with their partners. You know, the biggest thing with the Siemens of Rockwell, the Emersons of the world, in the process that we're going through, is to get certified on their systems. And that's kind of, you know, what we do with Rockwell. And, you know, you know, they love what we have to offer.
Speaker Change: Yeah, they pointed us to work with their partners that sold the systems and that's kind of what we're building a food chain with their partners.
Speaker Change: You know, the biggest thing with the Siemens, the Rockwells, the Emersons of the world in the process that we're going through is to get certified on their systems. And that's kind of, you know, what we do with Rockwell and, you know.
Speaker Change: You know, they love what we have to offer. I think that's why they invited us to do, you know, a talk at the upcoming show Because like they said, you know, we're very unique and and how we go
Victor Dellovo: I think that's why they invited us to do, you know, a talk at the upcoming show. Because, like they said, we're very unique and how we go to market with, you know, the way we protect applications, you know, at the core level. So that's kind of what we've been doing now that we've been approved and we're working with the marketing team, you know, in their magazine and all that stuff.
Michael Polyviou: Although our look at statements have qualified in your entirety by this cautionary statement, CSPI undertakes no obligations to public revise or update any further with the statements, whether it is a result of new information, future events or otherwise after the day they're out.
Speaker Change: to market with, you know, the way we protect applications, you know, at the core level.
Speaker Change: So that's kind of what we've been doing now that we've got approved and we're working with the marketing team, you know, in their magazine and all that stuff. Now they've, you know, we've had their blessing and now we're setting up each and every
Victor Dellovo: With that, I'll turn the call over to Victor DeLevo, Chief Executive Officer. Thanks, Michael, and good morning, everyone. Early this morning, we announced our fiscal 2024 third quarter results. And with the supply chain issue well passed, I'm pleased to report our business has returned to more normalized revenue run rate. And we have focused on driving our higher margin business while building the required infrastructure to drive the success of the emerging ACT product.
Victor Dellovo: Now, they've, you know, we've had their blessing, and now we're setting up each and every one of their partners, you know, but there's a process that goes into that, you know, and I think that's part of the thing I think everybody has to understand is that when you sign up new partners, you have to educate them, and then you have to get mind share. And, you know, it's not the only thing they do all day and every day.
Speaker Change: One of their partners, you know, but there's a process that goes through that, you know, and I think that's that's part of the thing. I think everybody
Speaker Change: you know um have to understand is when you sign up new partners you have to educate them and then you have to get mind share and you know it's uh you know it's not the only thing they they do all day and every day so it's definitely a process and you know you know putting training material for them and then you know we had to put training material for
Victor Dellovo: So it's definitely a process. And, you know, we had to put training material for them. And then, you know, we had to put training material for companies outside the country and, you know, changing the, you know, the language, so they could read it. There's a lot that goes into it.
Victor Dellovo: Protect product line. We have been able to consistently grow the service business and fiscal third quarter with no exception as a service revenue increased 10 percent and contribute to 150 basis points improvement to the gross margin percentage over the prior year level. The ACT protect offering has the capability to dramatically reshape our high performance product business and our entire company. Customer enthusiasm for the product line remains high and the team is generating leads and building and attractive pipeline.
Speaker Change: you know, companies outside the country and, you know, changing the, you know, the language so they could read it. There's a lot that goes in and, you know, because we're a small company, you can only, you know, do so much so fast, right.
Victor Dellovo: And, you know, because we're a small company, you can only do so much so fast, right? And so I feel like we're building the base, you know, the partnerships, you know, getting inside these resellers, doing training material, marketing material, you know, there's a process to setting the foundation at this stage. Well, I guess my only point on the Rockwell question was basically that a number of their customers were affected, and you know, let's put it this way, there's more urgency from a customer standpoint when they're being affected by different things as to how we can stop it, and I'm sure Delta does not want to go through what they went through again, and it has to be the same case with the Rockwell group. There's got to be a lot of them that were affected that don't want to go through it again.
Speaker Change: I feel like we're building the base, you know, the partnerships, you know, getting inside these resellers, doing training material, marketing material, you know, there's a process. We're setting the foundation at this stage. Well, I guess my only point on the Rockwell question was basically...
Victor Dellovo: Moreover, we are continuing to extend the brand awareness of ACT product through multiple awards, including being named winner in the Application Security Category at the 2024 Fortress Cybersecurity Award presented by Business Intelligence Group. Overall, the team has done an incredible job as this was the ninth major industry award, for the ADT Protect since the launch of the following following follow success at the Cybersecurity Excellence Award, the Global Infrastructure Award at RSA in the Global Award for Cybersecurity.
Speaker Change: [inaudible]
Speaker Change: and a number of their customers.
Speaker Change: Horrific, and in your-
Speaker Change: Let's put it this way, there's more urgency from a customer standpoint when they're being affected with different things.
Speaker Change: as to how we could stop it.
Speaker Change: I'm sure Delta does not want to go through what they went through again. And it has to be the same case with the Rockwell group. There's got to be a lot of them that were affected that don't want to go through it again.
Victor Dellovo: Well, I say there's an urgency there for correction, a solution, let's put it that way, and I'll take one quick follow-up here: what's different with your IT version of AZT Protector? You say you've come out with an IT version, and how do we differentiate ourselves a little bit? Can you add a little color to that? What we're attempting to do with the IT version. Well, the IT version, because of all these updates, The You know, in the OT space, it's kind of more locked down, right? Everything's kind of scheduled.
Victor Dellovo: During the quarter, we also signed some small mid-tier manufacturing customers located in the Midwest. We have many other similar opportunities that are being pursued. To ensure we maintain the momentum and remain focused, we recently hired Greg Fischer in experience 20-year O.T, industry sales veteran as VP of sales to head up the ADT product Protect Business. Throughout his career, Greg has consistently driven sales and is known for building and training high performance teams in complex solution sales and mentoring them to achieve ambitious goals.
Speaker Change: Well, I say there's an urgency there for correction, a solution, let's put it that way. And I'll take one quick more follow-up here.
Victor Dellovo: Greg is already transforming our sales team and in just a few weeks his impact is being felt throughout the organization. While a multi-pronged sales strategy, including engaging with four to five hundred companies, Greg immediate goes to ensure we have the right sales team to focus on small to mid-tier enterprise because of the show to sales cycle. We will continue to pursue live opportunities directly or through our partners despite the longer sales cycle because each one can represent multi-million dollar contract opportunities.
Speaker Change: What's different with your IT version of AZT Protector? You know, you say you've come out with an IT version, and how do we differentiate ourselves a little bit? Can you add a little color to that?
Speaker Change: We're attempting to do with the IT version.
Speaker Change: Well, the IT version, because of all these updates...
Speaker Change: They...
Victor Dellovo: So it's, it's, it's a more stable environment with IT where there are constant updates, whether it's, you know, any type of your, Any software you're running. We had to build a product that scans all the updates, looks at if it's from a valid source, and then, in a lot of cases, the way we built it was for the individual to approve the update. You know, we're going to tell you about it from a source, a valid source.
Speaker Change: In the OT space, it's kind of more locked down, right? Everything's kind of scheduled. So it's a more stable environment. With the IT where there's constant updates, whether it's, you know, any type of year.
Speaker Change: any software you're running we had to build a product that scans all the updates looks at if it's a from a valid source and then in a lot of cases the way we built it was
Speaker Change: for the individual to approve the update. You know, we're going to tell it from a source, a valid source.
Victor Dellovo: Like the one we signed in the second quarter which helped ADT protect awareness in the market. Greg is also helping the team prepare for several upcoming events such as the American petroleum and Stu conference taking place in Houston. This conference is the only cybersecurity conference dedicated to oil and natural gas industry and has a loyal and dedicated attendee base. As we engage with the largest oil company in the world in the water treatment plants, the process to evaluate ADT in these large oil and water treatments have taken months.
Victor Dellovo: And then, at that stage, it'll be up to the individual to, you know, basically approve the update. And that's kind of where, in CrowdStrike, it wouldn't have been an automatic update; we would have basically stopped it, looked at it, and, you know, would have given the customer time to test it. And, you know, and not just automatically let it go through. And that's kind of where I think some of the messaging on CrowdStrike is like nothing happens unless you approve it, you analyze it, and then you should be testing it. But that's, of course, not every company is going to do that, and that's kind of where they get into some problems. And this is not readily available, outside of many other cases.
Speaker Change: and then it'll, at that stage, it'll be up to the individual.
Speaker Change: to you know basically approve the update and that's kind of where in the CrowdStrike it wouldn't have been an automatic update we would have basically stopped it looked at it and you know would have given the customer the time to test it.
Speaker Change: and you know and not just automatically let it go through and that's kind of where I think you know some of the messaging on the CrowdStrike it's like nothing happens unless you approve it you analyze it and then you should be testing it but that's of course not every company is going to do that and that's kind of where they get into some
Victor Dellovo: Just to get set up in the assistance to do a proof of concept or a POC has taken four to six months, the team will also attend the industry industrial control system cybersecurity conference being held in Atlanta. This conference is the largest and longest running event series focused on industrial cybersecurity. Since 2002 the conference has gathered ICS cybersecurity stakeholders across various industries and attracts operations and control engineers, IT government vendors and academics.
Speaker Change: And this is not readily available.
Victor Dellovo: In other words, this, this, this idea of testing before is not, not being implemented too often in other places, other software competitors. Yeah, well, see, the other thing we do too is while, you know, a lot of these patches are because they have a gap, right? And then they're vulnerable, potentially, without that patch, when if you had AZT to complement all these products, we would still protect you, you know, 100%, while CrowdStrike or Sophos or Trend Micro or whoever else that's out in the marketplace runs their testing and before they are updated.
Speaker Change: outside of many other cases. In other words, this idea of testing before has not been implemented too often.
Speaker Change: other places, other software.
Speaker Change: Yeah, well see the other thing we do too is while
Victor Dellovo: We believe these and all the conferences are a ripe opportunity for further expand our brand presence within the OT marketplace. We have also successfully executed our ADT protect partnership program over the past few months. We entered a new integration partnership with four scout technologies which are office comprehensive asset intelligence and control across ITOT and IOT environments, trusted by Fortune 100 organizations, government agencies and large enterprises for over two decades. Four scout serves as a cornerstone for managing cyber risk ensuring compliance and mitigating threats.
Speaker Change: You know, a lot of these patches is because they have a gap.
Speaker Change: right, and then so they're vulnerable potentially.
Speaker Change: without that patch. If you had AZT to complement all these products, we would still protect you, you know, a hundred percent while a CrowdStrike or Sophos or Trend Micro or whoever else that's out in the marketplace, you know, ran their testing and before they were updated.
Victor Dellovo: Okay, well, great. It sounds like, you know, we'll put the pieces in place just a matter of time. Yeah, we got it. We got it. Yeah, we got it. We're building that, you know. I mentioned it at least the last two quarters so everybody has a clear understanding that, you know, I have built three other profitable practices on the umbrella. It takes time. You build a food chain, you build a salesforce, you have to build rebate programs, you have to build marketing.
Speaker Change: Okay, well, great. Well, sounds like, you know, we're putting pieces in place just a matter of time. Yeah, we got to build...
Speaker Change: Yeah, we got it we're building that you know, it's I mentioned it at least the last two quarters
Victor Dellovo: This full integration will take some time but we believe the opportunity can be huge. In addition, EBRICS, a managed security service provider performed a lengthy in-house red team evaluation of AZT protect prior to adding area to its existing portfolio of technology products. Partners. Hebricks is a leading provider of innovative cybersecurity services and solutions to commercial as well as government and public sector customers in North America, Amia, and APAC regions. Lastly, we're writing technology, a large global reseller, IT, and cybersecurity solutions will supply the award-winning ADT-protect solutions to its customers.
Speaker Change: to so everybody has a clear understanding that, you know, I have we have built three other profitable practices on the umbrella. It takes time. You build a food chain, you build a sales force, you have to build rebate programs, you have to build marketing. And, you know, the
Victor Dellovo: And, you know, the sub-30 people in the HPP, you know, just to give you a concept of how many people are doing all this, and most of those guys are engineers. So, you know, that I developed the product. So, you know, and we hire, you know, sparingly, and we try to do it the way that makes sense. And we try to hire the right people. I can't hire enough salespeople; we can't afford it. So what we're trying to do is to build a food chain using partners, you know, and getting the right partners and getting the right OT, right? We've never been in the OT space historically.
Speaker Change: the sub-30 people in the HPP.
Speaker Change: You know, just to give a concept of how many people are doing all this. And most of those guys are engineers.
Speaker Change: So, you know, that I developed the product so, you know, and we hire
Speaker Change: you know sparingly and we try to do it that what makes sense and we try to hire the right you know I can't hire enough salespeople we can't afford it so what we're trying to do is to build a the food chain using partners
Victor Dellovo: I believe this approach ensures we are using our resources and those of our partners to significantly raise the profile of AZT offering and build revenue opportunities. In only three weeks, Gregg has currently signed multiple resellers. In Gregg's conference, we can increase the number of OT focus resellers by December to over a dozen. Locations of these resellers are all over the world, including Chile, Peru, Brazil, Morocco, Norway, India, Australia, and Iberia. Our largest partnership is Rockwell, and we have recently been selected to update the industry on how to measure the cybersecurity risk-facing industry operations and how to got against them at the Rockwell Automation Fair in November.
Victor Dellovo: So all these partners, and that's kind of why, you know, when we chose to bring Greg on board, he's 20 years of working basically for the same company that only sold into the OT space, nothing else. It was just a matter of time. Yeah, yeah, like I said, we built for the three other little businesses inside the MSP are recurring revenue models, by the way, it took a little time. But guess what? It's a consistent business now that generates profit, month in and month out.
Speaker Change: Thank you.
Greg Fisher: you know, and getting the right partners and getting the right OT, right? We've never been in the OT space historically. So all these partners and that's kind of why, you know, when we chose to bring Greg on, he's 20 years of working basically for the same company that only sold into the OT space, nothing else.
Greg Fisher: Just a matter of time.
Speaker Change: guys that's that's yeah yeah you know like you know like i said we built four you know three three other you know little businesses inside the MSP are recurring revenue models by the way it took it took a little time but guess what you know it's a consistent business now that generates profits
Victor Dellovo: The event is being held in Anna High, California, and Gary Selfwell, vice president and general manager of high performance product segment, will be guest speaker. He will be presenting an in-depth review of the latest attacks techniques in their financial impact. Gary will outline how insurance provided a measuring the risk of how companies can comply with the new insurance and regulatory requirements, and will share a range of use cases to demonstrate how companies can apply reduction techniques to reduce measurable risk, including a high-profile ransomware attack on Merck, which resulted in a 1.4 billion impact and led to a lengthy legal battle with disinsurers to recover losses. Working with Rockwell together, we will be delivering new solutions to manufacturing environments that complement existing passive and active defense and pick up what they miss.
Victor Dellovo: Thanks to God for taking my questions, guys. Thank you. Once again, everyone, if you have any questions or comments, please press star, then one on your phone. Please hold Wallypole for questions.
Speaker Change: Montane and Montau. Thanks, thanks for taking my questions guys. Thank you.
Speaker Change: Thank you. Once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Please hold while we poll for questions.
Speaker Change: [inaudible]
Operator: Thank you. That concludes our Q&A session. I'll now hand the conference back to Victor Dellovo for closing remarks. Please go ahead.
Speaker Change: Thank you. That concludes our Q&A session. I will now hand the conference back to Victor Dellovo for closing remarks. Please go ahead.
Victor Dellovo: Thank you. As always, I want to thank our shareholders for your continued interest and support. Good things are happening, and the industry is taking notice of CSPI's award-winning AZT Protect. The activity we are experiencing is exciting, and we look forward to sharing our progress in FISCO's 2024 fourth quarter and four-year results quarter in December. Until then, be well, stay safe, and enjoy the rest of the summer. Thank you, everyone. This concludes today's event.
Victor Dellovo: Thank you. As always, I want to thank our shareholders for your continued interest and support. Good things are happening and the industry is taking notice of CSPI's award-winning AZT Protect.
Speaker Change: The activity we are experiencing is exciting, and we look forward to sharing our progress in FISCO's 2024 fourth quarter and four-year results quarter in December. Until then, be well, stay safe, and enjoy the rest of the summer.
Victor Dellovo: Before I review the technology solution TS business, I want to spend a couple of minutes highlighting the recent Crowd Strike-induced window outage in the opportunity to present for AZT. While the target market for AZT protect was initially focused on operational technology or OT, it was always our intent to engage the information technology or IT market professionals. We've had already commenced discussion with IT professionals, so the timing of the outage was benefit to our efforts.
Victor Dellovo: We believe had AZT protect been previously deployed, the outage would have been controlled at the corporate level. It has been estimated that the cost of the outage is in the billions of dollars and a Delta Airlines CEO has said costs his company 500 million. We believe companies using AZT protects protection capability can prevent both malicious code as well as flawed updating from taking critical systems down. We've proven this capability in the field on the real-life operational circumstances.
Victor Dellovo: We can ensure that the untested updates do not become active on the systems, helping corporation and organizations that all levels avoid another Crowd Strike type of disaster, as become the known for IT applications in cybersecurity vendors to send updates directly to their applications. Unfortunately, as a Crowd Strike event has demonstrated a few customers to test these updates, and just allow them to update automatically whether intentional or not untested supply chain updates can reckon more havoc on a critical system than most cyber attacks.
Victor Dellovo: If an update to the system puts lives in danger due to the outage, it should not be deployed without some form of verification test. Same goes for servers running any critical business process. The technology solution of TS business continues to perform well and generate the majority of the quarters revenue. The success of the TS continues to be driven by our customers increase use of implementation installation and training capabilities. We continue to add new MSP customers and we are currently awaiting decision on several big orders that if they go in our favor could positively impact our results in fiscal 2025 and beyond.
Victor Dellovo: The activity is encouraging and to add more color we are in the process of implementing a wireless conversion to over 70 to 80 locations of a global hospitality company. This work will continue through 2025. We also are working with the one of the largest freight operators specializing in containerized ocean exports serving numerous ports worldwide and we will be double the number of container ships for which we are performing equipment conversions and will continue to be their MSP for each and every ship.
Victor Dellovo: We also continue to generate higher levels of interest in our UCAS offering. And during the current fiscal fourth quarter we already signed several new customers. The momentum with the UCAS is building and we expect to enter the new fiscal year within annual revenue run rate that is more than double that what it was entering in fiscal 2024. In summary the strength of the TS business has allowed us to fund and develop BZT protect the TS business has three lines of recurring revenue the UCAS the cloud practice and manage service practice.
Victor Dellovo: This was a slow methodical process over the last few years but we now have all three generating consistent profits. We are building the AZT practice with the same methodology and determination as we did with the other lines of business. So I'm highly confident we will be generating consistent profits in the near future. Today we are in the process of deploying additional resources to ensure we have organizational infrastructure to support the business in 2025 and thereafter.
Victor Dellovo: AZT protect has the potential to revolutionize on our OT professionals approach their responsibilities in recent events to reinforce that IT professionals also need to be vigilant and ensure their business are not compromised whether from external threats or third-party software updates. A commitment to develop, innovate in high margin products in services has enabled us to expand our gross margins and grow our cash balance to a near record level.
Gary Levine: With that we will now ask Gary to provide a brief overview of the fiscal third quarter financial performance. Gary. Thanks Victor. For the third quarter ended June 30th three reported revenues of $13.1 million compared to revenue of $17.7 million for the fiscal third quarter ended June 30th 2023.
Gary Levine: I want to point out that a year ago, fiscal third quarter, we converted a sizeable portion of backlog to revenue as the supply chain issues had eased and we were able to get key components to complete and ship customer orders. As Victor said earlier, we have returned to a more normalized business environment. In fact, revenue was relatively flat compared to the 2024 fiscal second quarter. Gross profit for the three months ended June 30, 2024 was $4.6 million or 35% of sales compared to 5.9 million or 33.5% of sales representing 150 basis point gross margin percentage improvement despite the lower year over year revenue as higher margin services revenue fuel the improvement.
Gary Levine: For the third quarter, our engineering and development expenses were $734,000 compared to $741,000. Our S DNA costs include continual investment required to build out the AZT sales support and marketing and the amounts were $4.6 million for both fiscal years.
Gary Levine: For the fiscal third quarter, we reported a net loss of $185,000 or 2 cents per common share compared to a net income of $2.5 million or 26 cents per deluded common share for the fiscal third quarter ended June 30, 2023. In the prior year, our tax benefit with $1.7 million for the fiscal third quarter, primarily for the release of the valuation allowance against our deferred tax asset. For the third quarter, we generated operating cash flow of $2.4 million and as of June 30, 2024, we had cash and cash equivalence of $28.9 million compared to $13.9 million in the year ago, fiscal third quarter and $25.2 million at the end of our 2023 fiscal year.
Gary Levine: We believe that the continued success of the TS business, our ability to focus on selling higher margin products and services gives us the flexibility to leverage our resources to execute the multi-plombed sales strategy to target small, medium and large enterprises for AZT protect. During the fiscal third quarter, 2024, the company repurchased 4,800 shares for a total cost of $70,000. We currently have 9.7 million shares outstanding.
Gary Levine: Lastly, the Board of Directors approved the quarterly dividend of three cents per share payable on September 10, 2024 to share holders of record on the close of business on August 23, 2020, for.
Operator: With that, I will turn it over to the operator to take your questions. Certainly, everyone at this time be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask about posting your question, please pick up your handset if listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we pull for questions.
Joseph Nerges: Your first question comes from Joseph Nerges from Segren Investments. Your line is live. Point guys, how are you today? Good job. Well, first congratulations on all the awards that AZT protect has gotten. And of course, the expansion of the partnerships with some very large organizations is also positive going forward. My first question is really on the integration of the AZT protect into the four scout platform. Where is that and how long do you anticipate that to take?
Victor Dellovo: We haven't started yet. We are planning on, you know, they're doing planning sessions right now. And it could be anywhere from four to six months for that to be fully integrated in testing. Okay, so it's going to be obviously some a lot from our end and some from their end. I'm assuming yes. Yeah, they've, you know, they've engaged a team that's been a, you know, that will work with, you know, to build all the APIs.
Victor Dellovo: But it's a, you know, it's a, it's a monthly process, right? And dealing with these large companies as usually even on the integration. And it could be faster. I'm just not exactly sure. I don't know how fast the team's going to be. And, you know, and how, you know, there's going to be a lot of testing that has to be that we have to go through with them. So, you know, we're hoping it's faster, but we'll see.
Victor Dellovo: I'm not aware if they have any, any outside. Are you unique in this in the forest? Do you know that? If you're unique in that, almost all their platform was either developed internally or, or was via mergers where they've integrated other systems after they bought the company. Do you know if there was any other outside suppliers that are platform like like our case would be an outside. I didn't ask the question to be honest with you.
Victor Dellovo: You know, when we met them and we saw we were, you know, pretty happy that they, they saw how we could, you know, you know, they have a great product and, you know, how we can compliment that product and not cannibalize anything that they currently already have, right? Because they wouldn't want to competing, you know, products against each other. Whether it was I'm guessing whether it was another outside partner or something that they own internally.
Victor Dellovo: If we, you know, if we were doing the same thing, then I'm sure they wouldn't have signed the thought. Yeah. Well, I don't know if anything where, where they have a product perspective that that stops an attack like AZT protect would do, you know. Just another follow up here on with Rockwell. And of course with the debacle with the crows, the crows drink. Fauci Software, Don't Load. There's got to be a significant number of their clientele customers that have been effective, have to be in the O.T, environment because of such a dramatic amount of people were effective.
Victor Dellovo: So I would assume that they have a number of customers currently that were going to that problem. Do we know of anything? Yeah, have we gotten any update or any feel for what happened at the Rockwell, and we're going to try to strike them debunkles if you want to call that? Yeah, they pointed us to work with their partners that sold the systems and that's kind of what we're building at food chain with their partners.
Victor Dellovo: You know, the biggest thing with the Siemens at Rockwell, the Emerson of the world, in the process that we're going through is to get certified on this system. And that's kind of what we do with Rockwell, and they love what we have to offer. I think that's why they invited us to do a talk at the upcoming show, because like they said, we're very unique on how we go to market with the way we protect applications at the core level.
Victor Dellovo: So that's kind of what we've been doing. Now that we've got approved and we're working with the marketing team in the magazine and all that stuff. Now, we've had their blessing and now we're setting up each and every one of their partners. But there's a process that goes through that. And I think that's part of the thing I think everybody has to understand is when you sign up new partners, you have to educate them.
Victor Dellovo: And then you have to get mine share. And it's not the only thing they do all day and every day. So it's definitely a process and putting training material for them. And then we had to put training material for companies outside the country and changing the language so they could read it. There's a lot that goes in and because we're a small company, you can only do so much so fast. So I feel like we're building the base, you know, the partnerships, you know, getting inside these resellers, doing training material, marketing, you know, there's a process with setting the foundation at this stage.
Victor Dellovo: Well, I guess my only point on the Rockwell question was basically a number of their customers who are affected. And you know, let's participate. There's more urgency from a customer standpoint when they're being affected with different things as to how we could stop it. And I'm sure Delta does not want to go through what they went through again. And it has to be the same case with the Rockwell group. There's got to be a lot of them that were affected to don't want to go through it again. So easy. Well, I say there's a urgency there for correction. A solution, let's put it that way.
Victor Dellovo: And I'll take one quick, quick, quick follow up here. What's different with your IT version of AZT Protect R? You know, you say you've come out with an IT version and how do we differentiate ourselves a little bit? Can you add a little color to that? What were attempting to do with the IT version? Well, the IT version, because of all these updates, they, you know, in the OT space, it's kind of more locked down, right?
Victor Dellovo: Everything's kind of scheduled, so it's it's a more stable environment. With the IT where there's constant updates, whether it's, you know, any type of year, any software you're running, we had to build a product that scans all the updates, looks at if it's from a valid source. And then in a lot of cases, the way we built it was for the individual to approve the update. You know, we're going to tell it's from a source of valid source.
Victor Dellovo: And then it'll at that stage, it'll be up to the individual to, you know, basically approve the update. And that's kind of where in the crowd strike, it wouldn't have been an automatic update. We would have basically stopped it, looked at it, and you know, would have given the customer the time to test it. And, you know, and not just automatically let it go through. And that's kind of where I think, you know, some of the messaging on the crowd strike, it's like nothing happens unless you approve it, you analyze it, and then you should be testing it.
Victor Dellovo: But that's of course not every company is going to do that. And that's kind of where they get into some, some problems. And it's, and this is not regularly available outside of any many other cases. In other words, this, this idea of testing before has not, not been implemented too often, other places, other software competitors. Yeah, we'll see the other thing we do too is while, you know, a lot of these patches is because they have a gap, right?
Victor Dellovo: And then so they're vulnerable potentially without that patch. When you, if you had AZT to complement all these products, we would still protect you, you know, 100 percent while a crowd strike or so foes or a treadmill or whoever else that's out in the marketplace, you know, ran their testing and, and before they were updated. Okay, well great. Well, it sounds like we, you know, we put a lot of pieces in place just the matter of time.
Victor Dellovo: Yeah, we got to, we got to, we got to, yeah, we got to, we're building that, you know, it's, I, I had mentioned it, at least the last two quarters to, so everybody has a clear understanding that, you know, I have, we have built three other profitable practices on the, on Brawler, it takes time, you build a food chain, you build a sales force, you have to build rebate programs, you have to build marketing. And, you know, the sub 30 people in the HPP, you know, just to give a concept of how many people are doing all this, and most of those guys are engineers.
Victor Dellovo: So, you know, that are developed the product. So, you know, and we hire, you know, sparingly, and we try to do it, you know, what makes sense, and we try to hire the right, you know, I can't hire enough salespeople. We can't afford it. So what we're trying to do is to build a, the food chain using partners you know, and getting the right partners, and getting the right OT, right? We've never been in the OT space historically.
Victor Dellovo: So all these partners, and that's kind of why, you know, when we chose to bring Greg on, he's 20 years of working basically for the same company that only sold into the OT space. Nothing out. Just a matter of time. Like I said, we built three other little businesses inside, the MSP are recurring revenue models, by the way. It took a little time, but guess what, it's a consistent business now that generates profits, a month in and a month out.
Operator: Thanks, thanks, it got to take my questions, guys. Thank you. Once again everyone, if you have any questions or comments, please press star, then one on your phone. Please hold Wally Poll for questions. Thank you.
Operator: That concludes our Q&A session.
Victor Dellovo: I'll now hand the conference back to Victor Dellovo for closing remarks. Please go ahead. Thank you.
Victor Dellovo: As always, I want to thank our shareholders for your continued interest and support. Good things are happening and the entry is taking notice of CSPI's award-winning AZT protect. The activity we are experiencing is exciting and we look forward to sharing our progress in fiscal 2024, fourth quarter and four year results quarter in December. Until then, be well, stay safe and enjoy the rest of the summer.
Operator: Thank you, everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.