CSP Q4 2024 Earnings Report

CSP EPS Results

• Actual EPS: -$0.18
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

CSP Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CSP Announcement Details

• Quarter: Q4 2024
• Date: 12/20/2024
• Time: Before Market Opens
• Conference Call Date: Friday, December 20, 2024
• Conference Call Time: 10:00AM ET

CSP (NASDAQ:CSPI) (NASDAQ: CSPI) is a technology company that provides information technology solutions, cybersecurity services and high-performance networking products. Through its Technology Solutions segment, the company offers systems integration, managed services, cloud and infrastructure support, cybersecurity and related professional services for commercial, government and defense customers.

CSP also develops and supplies specialized networking products through its High Performance Products segment. Its Myricom business is known for high-performance network interface hardware and software designed for applications that require low latency and high-speed data processing, including financial services, telecommunications, media, government and research environments.

Founded in 1968 and headquartered in Lowell, Massachusetts, CSP serves customers in the United States and select international markets through direct sales, service operations and business partners. The company has expanded its offerings over time through acquisitions and internal development, including its acquisition of Myricom. Gary Levine has served as CSP’s president and chief executive officer.

CSP Q4 2024 Earnings Call Transcript

Key Takeaways

• In Q4 the company’s recurring revenue grew to 17% of total sales versus under 5% two years ago, and management is targeting a further 10–15% annual increase.
• CSPI finished the fiscal year with over $30 million in cash and equivalents, providing flexibility to fund growth initiatives like AZT Protect.
• The Technology Solutions segment delivered $12.7 million in Q4 sales, saw a resurgence in cruise‐ship services, and is building momentum in managed services and cloud migrations with a robust pipeline.
• The High Performance Products unit, anchored by AZT Protect, generated $400,000 in Q4 revenue, secured a Fortune 500 energy order covering thousands of endpoints, and has cultivated over 100 leads and a dozen POCs through its new Rockwell Automation partnership.
• For Q4 CSPI reported $13 million in revenue, a net loss of $1.7 million (or $0.18/share), and a 28.4% gross margin, while service revenue remained stable at $4.4 million.

Presentation

[Operator]

Greetings, and welcome to CSP Inc.'s Fiscal Fourth Quarter and Full Year 2024 Conference Call. At this time, all participants are in listen-only mode, and a question-and-answer session will follow the form of presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Michael Polyviou. Sir, you may begin.

[Michael Polyviou, Head of Investor Relations at CSP Inc.]

Thank you, Alan. Hello, everyone, and thank you for joining us to review CSPi's Fiscal Fourth Quarter and Full Year 2024 financial results, which ended September 30, 2024. With me on the call today is 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 one follow-up question, and then re-queue if they have additional questions. Statements made by CSPi's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the terms identified in federal securities laws. The words "may," "will," "expect," "believe," "predict," "project," "plan," "intend," "estimate," and "continue," as well as similar expressions, are intended to identify forward-looking statements.

[Michael Polyviou, Head of Investor Relations at CSP Inc.]

Forward-looking statements should not be meant 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 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 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, Form 10-K, and the quarterly report, Form 10-Q, filed with the Securities and Exchange Commission. Forward-looking statements are based on the information available at the time those statements are made and management's good faith belief as of the time with respect to future events.

[Michael Polyviou, Head of Investor Relations at CSP Inc.]

All 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. Victor, please go ahead.

[Victor Dellovo, CEO at CSP Inc.]

Thanks, Michael, and good morning, everyone. Our fourth quarter and full year financial results came in pretty much as expected when we last talked with you in August. Recurring revenue, which has been an area we have committed to growing, increased 17% of the total sales compared to less than 5% of sales just a couple of years ago. Overall, we finished the year with more than $30 million in cash and cash equivalents as of September 30, 2024. Our Technology Solutions business generated approximately $12.7 million in sales in the fourth quarter of fiscal 2024. We finished the quarter with plenty of momentum. For example, very little of our fiscal fourth quarter revenue came from our cruise ship customers.

[Victor Dellovo, CEO at CSP Inc.]

However, towards the end of the quarter and during the current fiscal first quarter, we've seen a pickup in the business, including signing a very large order that should be executed during the next fiscal year. It was the first cruise ship order for professional services for our company in many quarters, and piggybacks on the continued consistent momentum we built in the ocean freight liner market. Our freight liner operation customer continues to add new ships and choose to utilize our managed service offering following the retrofits, which have led to increasing recurring revenue. We continue to see increased demand for our cloud clients who want to migrate the consumption of these services to our cloud group. We also have a dozen active cloud-based projects to accommodate the growth.

[Victor Dellovo, CEO at CSP Inc.]

We continue to invest in people and process to provide managed service to assist our clients with the day-to-day operations of these environments. The pipeline remains very encouraging, so we are optimistic about our opportunities to grow the overall TS sales, especially the recurring revenue piece during the coming fiscal year. On the HPP side of the business, for the fourth quarter of fiscal 2024, we reported revenue of $0.4 million, mostly from ARIA-based customers. Also, as we discussed in the prior conference call, we were in the process of transitioning our AZT PROTECT sales effort, being led by Greg Fisher, an experienced 20-year OT industry sales veteran who joined us in July of 2024, has redirected the organization to maximize our relationships with Rockwell Automation and other distribution partners.

[Victor Dellovo, CEO at CSP Inc.]

In the short amount of time, we've made significant progress in building the market for this unique product, and we entered the new fiscal year with great potential from Rockwell and the other distribution partners that primarily serve the middle market OT customers, which tend to have shorter sales cycles than the larger OT organizations. Our internal team will continue to address the large individual corporate OT buyers, with the sales cycles extending up to 18 months while they work closely with the distributors to build a short-term revenue from the middle market customers. An example was a deal we announced with the Fortune 500 electric energy producer that selected ARIA Cybersecurity AZT PROTECT to protect its critical OT infrastructure from malicious cyberattacks. This was the first order of many to come, as it will be a few thousand endpoints over the next three years.

[Victor Dellovo, CEO at CSP Inc.]

We will assist with the rollout as fast as the customer will allow. We believe this approach will result in a noted upturn in AZT PROTECT sales in fiscal 2025 unfolds. Working with Rockwell Automation and other distribution partners, our sales team has quickly expanded the leads for AZT PROTECT to over 100. Many of these leads were generated from the Rockwell Automation Fair back in late November of 2024, but Gary Southwell, our Vice President and General Manager of High Performance Products, presented an in-depth view of the latest attack techniques and their financial impact. Gary's presentation was one of the show's hits and was a major reason why we generate so many leads from our participation. We also had a booth at the American Petroleum Institute show for oil and natural gas in Houston, where we began a relationship with several large companies.

[Victor Dellovo, CEO at CSP Inc.]

We further expanded AZT PROTECT's awareness in the market by attending the Industrial Control System Security Week show in Atlanta. While we work to convert the leads generated from these activities into AZT PROTECT sales during the fiscal 2025, we will be supporting additional regional trade shows events with our distributors throughout the year. I strongly believe the interest we are generating at the trade shows is fostered by nine major industry awards from AZT PROTECT, which has received since its launch, including the winner of the Application Security category at the 2024 Fortress Cybersecurity Award presented by Business Intelligence Group. Our efforts to sign new distributors and gain new customers have also benefited from the July CrowdStrike update failure that exposed the risk continuous cloud updates can have on critical OT applications, including industrial automation industry control systems.

[Victor Dellovo, CEO at CSP Inc.]

There is a recognition from the industrial automation vendors and the distribution channels that the traditional IT-focused endpoint protection methodologies were not meeting their requirements. We believe companies using AZT PROTECT protection capabilities can prevent zero-day malicious code from taking critical systems down out of the box without having seen it before and then relying on cloud updates to block such attacks. We've proven this capability in the field under real-life operational circumstances. This alternative approach to protect industrial control systems is being received as welcome news by Rockwell distributor partners. The Rockwell show was the mechanism needed to bring this news into the ecosystem. From there, we believe we can expand into other markets. We have one agreement already completed and three others in process with top-tier U.S.-based Rockwell distributors, allowing our U.S.

[Victor Dellovo, CEO at CSP Inc.]

team to work directly with the distributor sales teams to map out target accounts to approach together. In summary, when we consider AZT PROTECT market momentum in the emergence of the Rockwell partnership, the growth of the managed service business, and the pickup in the cruise lines, we have a potential to return growth during the fiscal 2025. With that, I will now ask Gary to provide a brief overview of the fiscal fourth quarter financial performance.

[Gary Levine, CFO at CSP Inc.]

Thanks, Victor. For the fourth quarter ended September 30, 2024, we reported revenue of $13 million compared to revenue of $15.3 million for the fiscal fourth quarter ended September 30, 2023. Revenue was relatively flat compared to 2024's fiscal third and second quarters. Service revenue represented $4.4 million of overall sales compared to the year-ago service revenues of $4.3 million. Gross profit for the three months ended September 30, 2024, was $3.7 million for 28.4% of sales compared to $5.2 million for 33.8% of sales, reflecting a higher percentage of product sales. Gross margins on our service revenue increased 160 basis points from last year's comparable figures.

[Gary Levine, CFO at CSP Inc.]

The company reported a net loss of $1.7 million, or $0.18 loss per common share for the fourth quarter ended September 30, 2024, compared to net income of $1.4 million, or $0.15 per share per diluted share for fiscal fourth quarter ended September 30, 2023. We had cash and cash equivalents of $30.6 million as compared to $25.2 million at the end of our 2023 fiscal year. The robust balance sheet ensures that the company has the resources to implement the AZT PROTECT product offering and other growth strategies. During the fourth quarter of 2024, the company repurchased 2,800 shares of stock at a total cost of $34,000. And the board of directors has approved the payment of a $0.03 per share quarterly dividend to shareholders of record at the close of business on December 27, 2024, payable on January 15, 2025.

[Gary Levine, CFO at CSP Inc.]

For the fiscal quarter, our engineering and development expenses were $793,000 compared to $705,000. The increase was for outside consulting and stock compensation. Our SG&A was $5.5 million compared to $4.8 million in the year-ago fiscal fourth quarter. The increase was based on increased legal, audit, and tax and recruiting expenses. For the full year ended September 30, 2024, revenue was $15.2 million compared with revenue of $64.6 million in the prior year. Gross profit for the fiscal year was $18.9 million, or 34.1% of sales compared to $21.9 million and 33.9% of sales, with the decline largely attributed to product mix. We reported a net loss of $0.3 million, or $0.04 per diluted share in the fiscal year ended September 30, 2024, compared to the net income of $5.2 million, or $0.55 of income per diluted share for the fiscal year ended September 30, 2023.

[Gary Levine, CFO at CSP Inc.]

With that, I will turn it over to the operator to take your questions.

[Operator]

Thank you. At this time, we'll be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull up your question. Thank you. Our first question is coming from Joseph Nerges with Segren Investments. Sir, your line is live.

[Joseph Nerges, Managing Director at Segren Investments]

Morning, guys. How are you today?

[Victor Dellovo, CEO at CSP Inc.]

Good morning, Joe.

[Joseph Nerges, Managing Director at Segren Investments]

Just one quick accounting point here. Gary, last year, I think you mentioned in our fourth quarter that we had a credit of $2.1 million for an employment retention credit in our reporting of the fourth quarter of last fiscal year. So obviously, that number, and when we're comparing fourth quarter this year versus fourth quarter last year, that credit didn't fall into this year. So that's a considerable number.

[Gary Levine, CFO at CSP Inc.]

Absolutely. Yes.

[Joseph Nerges, Managing Director at Segren Investments]

I'll go on, not to your question, but we talked about last year, Victor, quite a bit of what we call proof of concept. And I realized the trade shows that you referred to were very recent. In fact, we were in one last week, I believe, in Oman.

[Victor Dellovo, CEO at CSP Inc.]

Correct.

[Joseph Nerges, Managing Director at Segren Investments]

But the Rockwell was last month, and then the Atlanta show, I think, was the month previous, whatever. So I'm assuming there's an enormous amount of leads come out of all those shows. But do we have any proof of concepts? Have we started testing any of these companies or even prior to where are we at today with testing? How many people are out there? How can I say, testing AZT PROTECT today?

[Victor Dellovo, CEO at CSP Inc.]

Yeah. From the shows, the one for Rockwell, it was right before Thanksgiving, and then you had Thanksgiving, and then it's literally only been like 10 business days that we've been able to contact those. But yeah, there's been a lot of conversation. But the one that was overseas, we actually are starting a POC, believe it or not, on Sunday. That happened already just in a week. So yeah, there's been a lot of activity, a lot of conversations, and a lot of people like the POCs will start after the new year. They're kind of already on vacation mode. But there's been a lot of good conversations and a lot of things that we have to follow up on the new year.

[Joseph Nerges, Managing Director at Segren Investments]

Yeah, but even prior to that, Victor, we've had proof of concepts ongoing even from earlier this year.

[Victor Dellovo, CEO at CSP Inc.]

Oh, yeah, and those will continue. I think maybe I misunderstood your question, but I thought you meant new just from those recent shows. But yeah, we have probably more than a dozen POCs going on in various stages. The one that we closed with the energy company recently, that was over a year POC, and we finally got awarded. And there's some other that we're waiting. The POCs are done, and now we're just waiting either for budgets or we're waiting to see if we were the last one standing in the POCs. And a lot of them had said to us that decisions will be made in January. I don't know if that's true or not, if it moves, but we are waiting for a couple very promising things in January. So hopefully, they come through.

[Joseph Nerges, Managing Director at Segren Investments]

Just to clarify, you've made PRs on this before, but we have three Fortune 500 companies now that are utilizing AZT PROTECT: a chemical company, the power company that you just referred to, and then the pharmaceutical company that we announced earlier this year, as well as the government, the Western intelligence agency that are utilizing AZT PROTECT. So we're not talking about small customers here that have looked at it and approved it. I just want to clarify that.

[Victor Dellovo, CEO at CSP Inc.]

And hot off the press is this, just keep your eyes out. There'll be something coming out early next week on another nice win. So just give you an update.

[Joseph Nerges, Managing Director at Segren Investments]

All right. All right. I appreciate that. And one other point on the stock buyback, I realize 2,800 shares. All I'm saying is I think you guys and the board ought to get maybe slightly more aggressive. I know we have a little more volume in the shares now than we did a year ago. So we can buy more shares under the market conditions. But I would think that you guys should be seriously considering maybe upping the amount of shares that can be repurchased under the program. And I'll move on to somebody else's questions. Thanks again, guys.

[Victor Dellovo, CEO at CSP Inc.]

Thanks, Joe.

[Operator]

Thank you. Our next question is coming from Will Lauber with Visionary Wealth Advisors. Your line is live.

[Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors]

Yeah. Guys, just so people can realize and help us get a handle on how much money you guys are putting into this AZT effort for hopefully a huge payoff down the line, what would the earnings have been that division for this year?

[Gary Levine, CFO at CSP Inc.]

But it was a loss. So I mean, we've got.

[Victor Dellovo, CEO at CSP Inc.]

No, you said if you took out AZT, if it was just TS, it would.

[Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors]

Yeah.

[Gary Levine, CFO at CSP Inc.]

Oh, yeah. Yeah. Definitely. It would be profitable.

[Victor Dellovo, CEO at CSP Inc.]

It would be very profitable. Yes. Yeah. That's one thing that I have to understand. The TS is doing really, really well. They're the cash cow that's paying for all this R&D for AZT. And to grow the cash position and to have a true startup and only have a small loss for the whole year. Like I said, people want earnings. They want dividend. They want cash growth. They want everybody. AZT is truly a startup. We have to build a whole food chain for distribution. There's a lot going on right now. But now they're in building the sales team, getting partners. There's a lot going on on that side of it. And then we had Myricom sales last year. And unfortunately, because that product was over 20 years old, the big distributor or manufacturer, actually, that was building the boards no longer will build the boards.

[Victor Dellovo, CEO at CSP Inc.]

So all that Myricom business from last year went away. There's some pieces and parts that we still sell, but they're minimal now. So if you really look at it, where we were and where we are, and to Joe's point, our big customers that we have closed are all Fortune 500 customers. And that's where a lot of the testing, it took a lot of time through the POCs. But now we have four customers that are using it that are happy.

[Victor Dellovo, CEO at CSP Inc.]

Now we're just, like I said, building out the food chain to try to get in front of more people, building our name recognition, which is, like I said on a prior call, is one of the things that I think is just because of our size and our name. It takes a lot more effort to get that sale over the fence just because we're competing with some other multi-billion-dollar companies in this space.

[Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors]

Okay. So could you guys put an approximation on it? I mean, could we have earned $1 a share?

[Victor Dellovo, CEO at CSP Inc.]

Yeah. More than that. Yeah.

[Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors]

More than $1 a share?

[Victor Dellovo, CEO at CSP Inc.]

Mm-hmm.

[Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors]

Okay. And my next question was the increase in your recurring revenue as a percentage is pretty impressive. When you look out, say, three, maybe five years down the line, what percentage do you think that could be? And what's kind of your internal goals?

[Victor Dellovo, CEO at CSP Inc.]

If we could double again in the next 24 months, that would be something that we'd be proud of. And that's where we're very, very focused on that recurring revenue piece of it, especially in the cloud, the Microsoft business that we're continuing to grow, the engineers, the support staff, and the sales staff along with it. And then the MSP, if we could get into the cloud play, the MSP usually comes after that. So they're definitely adjacent to each other. If we can get one, we usually get the other. So yeah, our goal is to grow that as fast as possible. There's no limits on what we want to do, but at least a 10%-15% growth minimum year-over-year, if not more.

[Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors]

Okay.

[Gary Levine, CFO at CSP Inc.]

To answer your question, it would be about $0.56 per share.

[Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors]

Okay. All right. Thank you.

[Gary Levine, CFO at CSP Inc.]

Yeah.

[Operator]

Thank you. Our next question is coming from John Crotty, who is a private investor. Your line is live.

[Operator]

Hi. Thanks for taking my call. I want to just say congratulations on the F500 energy company, 18 months is a long POC. I understand I've been involved with a few, and good job, especially having the patience, and for us investors, we need to have the patience of a dead person, so we're with you right along with it. Anyway, you've talked a lot about the Rockwell, and I read a lot, and that really seems like a great partnership with lots of leads, but I want to talk about the other partnerships you have. You have the large one in Australia. You mentioned there was a smaller one in the Middle East, and then we had a larger one that was out in the U.S., I believe, on the East Coast with a lot of clients.

[Operator]

Could you give us any feedback on that in terms of, are they running proof of concepts? Do they have a large pipeline or any type of info like that?

[Victor Dellovo, CEO at CSP Inc.]

The partner in Australia, they're not the largest partner, but we do have some POCs going on with them. They are good-sized opportunities. And they're not in the commercial sector, so things do take time there, but they are progressing. And yeah, and the partners that we're focused on right now with the Rockwell is because we're really focused on that OT space and because we have the approval from Rockwell as a certified partner, that's kind of where our focus has been because getting into some of the other manufacturers takes time. Rockwell took us almost two years to get approved inside as a certified partner. So we're working with some of the other big manufacturers. We're in different stages of getting approval as a certified partner that can work inside their stack. So yeah, everything is moving just at different paces, just depending on how fast.

[Victor Dellovo, CEO at CSP Inc.]

And in some of these large organizations, unfortunately, people leave, move, or get fired. And sometimes you take two steps forward, and then someone leaves, and you got to re-educate the new person. And we've seen that happen in some of these large manufacturing companies.

[Victor Dellovo, CEO at CSP Inc.]

Yeah. I agree. Go for the low-hanging fruit because they're pushing you through. I agree. I also want to talk about what you mentioned a couple of calls ago, that some of the government win that you had, they had many other divisions or departments or areas that were waiting for budgets to add it in. Is anything moving along with increasing any of the opportunities with existing customers, especially like you had mentioned with the Western intelligence?

[Victor Dellovo, CEO at CSP Inc.]

Yeah. There's another opportunity I think that has moved forward. Timing on that, I'm not exactly sure, but there is a deal that I feel like in the next 90 days, we're hoping that will come in, and that's all I can say about that.

[Victor Dellovo, CEO at CSP Inc.]

Okay. No, that's fair enough. And I know you have a lot of non-disclosures you got to be cautious with. No, that was it. That's what I wanted just to follow up. Everything else read through, and I liked the response. And I liked $0.56 a share on just the TS side. So that's good. All right. Thank you so much. Keep up the good work, guys.

[Victor Dellovo, CEO at CSP Inc.]

Thank you.

[Operator]

Thank you. Our next question is coming from Douglas Johnson, who is a private investor. Your line is live.

[Operator]

Yes. How large are these AZT contracts you have with these three Fortune 500 companies?

[Victor Dellovo, CEO at CSP Inc.]

I can't disclose exactly, but one of them is in the millions. The other ones, as I mentioned in the script, we're looking to get adopted inside their infrastructure. Some of these were what was left in the current budget, and then we'll roll out. I mentioned the big energy. They have thousands of systems that they told us it could take up to three years to roll them out. We're hoping to speed that up by us doing or assisting with the installation, but there are thousands of endpoints, and how they roll out and how fast is kind of up to the customer.

[Victor Dellovo, CEO at CSP Inc.]

Okay. Thank you.

[Operator]

Thank you. Our next question is coming from Jeffrey Stevens with Long Pond Capital. Your line is live.

[Jeff Stevens, Analyst at Long Pond Capital]

What's going on, guys?

[Victor Dellovo, CEO at CSP Inc.]

How are you doing?

[Jeff Stevens, Analyst at Long Pond Capital]

Yeah. Good. Good. I looked back a couple of years ago. You guys had a relationship with NVIDIA, with ARIA. You guys did a little announcement with them that their hardware and their software. Is it possible that have you had conversations with them for AZT?

[Victor Dellovo, CEO at CSP Inc.]

Yes. We definitely have had conversations with them. That was one of the examples where some of the powers that be that we were talking with kind of moved on. So we kind of had to start from scratch a little bit on some of the contacts there. But there's definitely conversations. They're not moving as fast as we would like, but we do have some relationships there. And we're talking more in their robotic area. That's kind of where we want to focus on AZT in that area. What comes from it, I can't say, but that's kind of our goal and our focus with those guys.

[Jeff Stevens, Analyst at Long Pond Capital]

All right, well, thank you so much.

[Victor Dellovo, CEO at CSP Inc.]

Thank you.

[Operator]

Thank you. Our next question is coming from Brett Davidson, who is a private investor. Your line is live.

[Operator]

Gary, Victor. Happy holidays.

[Victor Dellovo, CEO at CSP Inc.]

How are you, Brett? Same to you, Brett.

[Victor Dellovo, CEO at CSP Inc.]

I'm doing good. I'm going to limit it to one question. It's just going to be a multi-part. I'll link it with "and. Is there any legacy stuff at all going on in the E-2D program? And can you give a little color on those UCaaS contracts that were announced in the last quarterly earnings release?

[Victor Dellovo, CEO at CSP Inc.]

There is going to be a little E-2D next year. It was supposed to be in this quarter. They moved it. So we're thinking it's going to be Q1. It could move out, but that's coming, as you know, towards the end. It is at the end of its career. But we believe there'll be one more next year and in 2025. And then there'll be some pieces and parts. We're guessing. We're not sure exactly. And then on the UCaaS, we continue just to grow that business, bring in new clients. There's been a few that we sold a deal last quarter, but it took some time to implement, and we turned on the billing in this quarter. So it'll continue to grow over time. And these are usually three-year contracts.

[Victor Dellovo, CEO at CSP Inc.]

Got it. And so that's this quarter and any headway since then?

[Victor Dellovo, CEO at CSP Inc.]

Yeah. No, the pipeline looks pretty good on UCaaS, and we're constantly bringing on one or two customers consistently every quarter of all sizes. And it's a monthly recurring, so it's not like you get a big pop. You get whether it's $5,000 or $20,000 or whatever the number may be. It's on a monthly basis. Like I said, we're focused on our recurring revenue at this stage of the game. We'll still sell the product and services as we do. And I mentioned one of the cruise lines finally gave us a nice close to a $1 million professional service contract that will roll out over 2025. Yeah. We're focused on either professional services because of high margin or any of the recurring revenue. And we try to do multi-year deals on pretty much everything we do. Microsoft is a little different.

[Victor Dellovo, CEO at CSP Inc.]

You either get one year or monthly, but that's because it's a program that they offer.

[Victor Dellovo, CEO at CSP Inc.]

Got it. Well, thank you very much.

[Victor Dellovo, CEO at CSP Inc.]

Yep. Have a good one. Happy holidays.

[Victor Dellovo, CEO at CSP Inc.]

Thanks. Same to you.

[Operator]

Thank you. Once again, if there would be any final questions or comments, please indicate so now by pressing star one on your telephone keypad. Okay. As we have no further questions in queue at this time, I'd like to hand the call back over to Mr. Dellovo for any closing comments.

[Victor Dellovo, CEO at CSP Inc.]

Thank you. As always, I want to thank our shareholders for their continued interest and support. Good things are happening at CSPi and AZT PROTECT in generating more interest and gaining more and more momentum in the market. The increased activity we are experiencing is exciting, and we look forward to updating you on our progress in February. Until then, our best wishes for a healthy, happy holiday season. Thank you.

[Operator]

Thank you, ladies and gentlemen. This concludes today's call, and you may disconnect your lines at this time. And we thank you for your participation.

Participants

Executives

• Victor Dellovo, CEO
• Gary Levine, CFO
• Michael Polyviou, Head of Investor Relations

Analysts

• Analyst 2
• Analyst 1
• Analyst 3
• Joseph Nerges, Managing Director at Segren Investments
• Will Lauber, Partner and Senior Wealth Management Advisor at Visionary Wealth Advisors
• Jeff Stevens, Analyst at Long Pond Capital