CSP Q3 2025 Earnings Call Transcript

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Provided by Quartr
August 14, 2025

Key Takeaways

  • Positive Sentiment: Our fiscal Q3 revenue rose 18% year-over-year to $15.4 million, marking an 18% sequential gain and setting us up to grow both top and bottom line for the full fiscal year if current trends continue.
  • Positive Sentiment: The Managed Cloud business exceeded expectations with over 20 active projects and significant traction in niche markets such as container shipping, showcasing strong demand for secure, scalable cloud solutions.
  • Positive Sentiment: Our AZT Protect cybersecurity offering is gaining momentum through a land-and-expand approach, with new deployments in the steel, concrete, and lumber industries via Rockwell Automation resellers and a growing high-value deal pipeline.
  • Negative Sentiment: Gross profit margin decreased to 29% from 35% due to a shift in sales mix and higher component costs, while R&D and SG&A expenses rose to support development and marketing of AZT Protect.
  • Positive Sentiment: We closed Q3 with over $26 million in cash, repurchased 19,000 shares, and the board approved a $0.03 quarterly dividend, reinforcing our strong balance sheet and commitment to shareholder returns.
AI Generated. May Contain Errors.
Earnings Conference Call
CSP Q3 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to CSPi's fiscal two thousand twenty five third quarter results conference call. At this time, all participants are on a listen only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the call over to your host, Michael Polivio. Michael, the floor is yours.

Speaker 1

Thank you, Tom. Hello, everyone. And thank you for joining us to review CSPi's financial results for the fiscal twenty twenty five third quarter ended 06/30/2025, as well as recent operating developments. Today, with me on the call is Victor DiLovo, CFPI's Chief Executive Officer and Gary Levine, CFPI's Chief Financial Officer. After Victor and Gary conclude their opening remarks, we'll then open the call for questions.

Speaker 1

During the Q and A session, we ask participants to limit themselves to one question and one follow-up question, then re queue if you have additional questions. Statements made by CFPRI's management on today's call regarding the company's business that are not historical facts may be forward looking statements as those identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions are intended to identify forward looking statements. Forward looking statements should not be meant as a guarantee of future performance or results. The company cautions you that these statements reflect the 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.

Speaker 1

Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10 ks and the quarterly report on 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. 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 DiLomo, Chief Executive Officer. Victor, please go ahead.

Speaker 2

Thanks, Michael, and good morning, everyone. Our fiscal third quarter revenue was $15,400,000 representing an 18% increase over last year's third quarter revenue. It also represents an 18% sequential increase over our prior quarter and illustrates the building momentum our business segments are generating in the market. Our Technology Solutions segment is currently driving our revenue growth as in the High Performance Products segment, we continue to build awareness and, more importantly, significant deal pipeline for our highly differentiated ADT Protect cybersecurity offering. Midway through the fiscal fourth quarter, the momentum is continuing, and we believe that if current trends continue, we'll be able to grow both top and bottom line for the full fiscal year.

Speaker 2

Our Managed Cloud business provides customers with customized managed infrastructure solutions, moving their technology and data management to the cloud and continues to exceed our expectations. We have gained significant traction in niche markets, including the container shipping industry. Recently, one of our customers increased our involvement with their operation to provide cloud services to their headquarters after we built a hugely successful track record with their vessels. TS has experienced strong momentum in the cloud initiatives, driven by successful execution of over 20 active projects and the span range from industries and use cases. The growth reflects the company's strategic focus on delivering secure, scalable, and high performance cloud solutions tailored to clients' needs, from infrastructure modernization to advanced cybersecurity services.

Speaker 2

By leveraging its deep expertise and strong customer relationships, TS has been able to rapidly expand its cloud portfolio, enabling organization to accelerate digital transformation and achieve greater operational agility. The breadth and diversity of these active projects underscore TS' ability to meet complex technical demands while positioning itself as a trusted partner in the evolving cloud market. Overall, the TS business generated strong revenue growth and demand remained strong during the fourth quarter. In the High Performance Product, or HPP, segment, ARIA AZT Protect continues to build momentum in the operational technology marketplace. During the fiscal third quarter, working through our Gold Star Rockwell Automation reseller, we deployed new customers in steel, concrete and lumber industries.

Speaker 2

In most cases, the customer is deploying AZT Protect at an individual site, and through successful implementation of our solution, we pursue expansion within the organization, creating a potential for 5 to 6 figures long term relationships with these end user customers. We have settled on a land and expand sales approach with the feedback from our resellers. So what does that mean by land and expand in the steel industry? We recently signed the first customer, one of The U. S.

Speaker 2

Largest steel producer mill sites. The customer love our ability to lock down the environment and already has seen success in stopping an unintentional update that could have taken down the mill's production. We have called this feature industrial control lockdown. As we built a track record at that site, we have gained trust and traction with other plants within the company operations. Especially now that we have internal reference plant is willing to vouch for us, over time, this could result in significant company wide relationship for us.

Speaker 2

This approach is broadening our deal pipeline for AZT, which continues to offer our operational technology marketplace a unique, effective cybersecurity industrial control solution. This is the same process in which we secured the multimillion dollar opportunity within the global pharmaceutical company in fiscal twenty twenty four, which will continue to support ADT Protect for 6 figure annually for this customer, as mentioned in the last quarter's press release. Q3 was the first quarter working with the three largest Rockwell resellers, each of which does tens of billions of revenue in The U. S. Each year.

Speaker 2

We talked to each of their top executives in July, and the feedback was overwhelmingly positive. They all feel we're right on track to meet their sales plans for the product, which should see strong expansion within the next three to six months after laying out the groundwork in Q3 and Q4. One of these resellers is Rexel USA, an industrial leader in supply industrial equipment throughout The United States. Rexel provides a variety of products industrial customers across The US and is a premier Rockwell Automation distributor. Here is the feedback quoted.

Speaker 2

We can now see how to properly position this product, and unlike other industrial automation products we sell, the sales cycle is much shorter. It gives us a chance to have conversations at an executive management level with our customers, and we are already engaged in opportunities to deploy in large multi site US customers. They also asked for patience as they position ARIAZT for expanding revenue opportunities within their large customer base. CED and Sonapar USA echoed similar statements, saying they are both excited about the opportunity to grow business in FY 2026 now that they have had initial success with selling the product. Based on their expert opinion, they estimate we're somewhere near the end of early adoption cycle and moving towards revenue acceleration.

Speaker 2

One of our major wins, which was received late in Q2 and announced during the fiscal third quarter, was the initial order was to protect energy management equipment at each towers at one of the largest cell towers in South Africa. This came from the South African distributor, ORIX. Later in the quarter, we announced a follow-up order to provide protection for security camera monitoring systems deployed at the same company's towers. This is an important development as we currently have ARIA team members on the ground in South Africa to foster stronger relationships. Deployment of these AZT Protect installation often requires a customized approach for the first deployment.

Speaker 2

Specifically involved, our team integrated our software to be used within the systems and products supplied by other vendors. As a result, the initial deployment process could take longer than we would like. However, once the initial integration is done, the result is a sticky solution that can be deployed automatically across each vendor's customers as they deploy or upgrade their products. This ability to add AZT Protect to the company's existing industrial IoT system is a new major driver behind our growing pipeline while facing a market segment with little current competition. What this means is that not only can we expand by protecting cell tower industrial IoT infrastructure in other regions of the world, but also protect the same type of products as they are deployed across a variety of industries and sectors.

Speaker 2

Oryx is an is extremely bullish on AZT Protect and its unique value proposition for large, growing industrial IoT market. Looking at the feedback from the three largest Rockwell resellers in The U. S, combined with the exciting progress with our partner in Oryx, we believe we have made tremendous progress and are confident in our ability to maximize our returns from AZT Protect. We continue to make prudent investments in the marketing AZT Protect, which includes conference participation in attending region events held by distributors to build off their existing customer relationships. We finished the quarter with more than $26,000,000 in cash and cash equivalent, while continuing to invest in our AZT product line.

Speaker 2

Additionally, we repurchased 19,000 common shares on the open market during the quarter, and the Board of Directors authorized another $03 per share quarterly cash dividend. In summary, the TS business continues to generate consistent, strong growth while we continue to build our presence with major customers for AZT Protect in the HPP segment. Our fiscal fourth quarter at this point is going really well, and we are positioned to finish the year ahead of fiscal twenty twenty five. CSPi was added to the Russell three thousand Index effectively 06/30/2025, as part of the 2025 Russell Index reconstitution, which enhances our visibility among institutional investors. Now I will ask Gary to provide a brief overview of the fiscal third quarter and nine months financial performance.

Speaker 2

Gary?

Speaker 3

Thanks, Victor. For the third quarter ended 06/30/2025, we reported revenue of $15,400,000 compared to $13,100,000 for the prior year. Product revenue grew 29% over last year's third quarter, while service revenue of $5,300,000 was slightly higher than the 2024. Gross profit for the three months ended 06/30/2025, was $4,500,000 or 29% of sales compared to gross profit of $4,600,000 or 35% of sales for the quarter ended 06/30/2024, due to our sales mix and reflects higher component costs in the product side of the business. Our engineering and development expenses increased 7%, comparing the current quarter to the prior year quarter due to increased consulting on the AZT product.

Speaker 3

The SG and A expenses for the quarter were up over the prior year by $200,000 largely due to increased sales and marketing expenses related to the AZT Protect. We had a tax benefit of $751,000 due to the quarterly loss and a refund of federal taxes for fiscal twenty nineteen of $296,000 in the quarter. For the nine months, our revenue of $44,300,000 was $2,100,000 over the $42,200,000 in revenue generated during the first nine months of fiscal twenty twenty four. The nine month income tax benefit was $1,500,000 allowing us to record a net profit of $100,000 or $01 per diluted share of common. The company continues to maintain a robust balance sheet as of 06/30/2025.

Speaker 3

We had cash and cash equivalents of over $26,000,000 A higher cash balance relative to our liability enhances the company's resources to pay a quarterly cash dividend while executing growth, which includes the continued rollout and marketing awareness of the AZT product offering. We spent $251,000 during the quarter purchasing 19,000 shares of common. Lastly, as Victor mentioned, the Board of Directors approved a $03 cash dividend for shareholders of record on 08/29/2025, payable on 09/15/2025. With that, I will turn it over to the operator for your questions.

Operator

Thank you. The floor is now open for questions. If you would like to join the queue to ask a question at this time, please press star one on your telephone keypad to join the queue. We do ask if listening on speakerphone this morning that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star one on your telephone at this time if you wish to join the queue to ask a question.

Operator

Please hold a moment while we poll for questions. And your first question this morning is coming from Brett Davidson. Brett, your line is live. Please go ahead.

Speaker 4

Good morning. Good morning, Brett.

Speaker 2

Pretty Hey, Brett.

Speaker 4

Pretty ex pretty exciting release this morning. Awful lot to digest. Gary, you had just mentioned something about consulting expense. Yeah. Can you guys expand on exactly what that is?

Speaker 2

Those were consultants that we additional engineers to do some additional high level testing of the product with the some of the improvements, enhancements we have made with the product.

Speaker 4

Is that gonna be a recurring thing, or is that just that was just a onetime onetime deal?

Speaker 2

It's probably be for another quarter.

Speaker 4

Got it. You announced that there was some sort of lumber mill, concrete facilities.

Speaker 2

Yep.

Speaker 4

Can you disclose just generally where, like, the the lumber mill is located? Is this a Pacific Northwest thing? Or Yes. Yes. Okay.

Speaker 4

Good enough. And the concrete thing, what I mean, kinda what does that look like? I mean, I'm I I know these things are are, you know, kind of a regional thing, and I don't know that there's maybe some of these entities that are there's some ownership overlap in regional or or national. But I think a lot of these concrete plants are, you know, local ownership, small concrete plants. So so what does the concrete plant business look like?

Speaker 2

It's just basically doing the same thing, protecting the facilities in the machinery that's being worked on the IoT side. And some of these concreases, like 23 sites for one, where we were able to get into one and then evangelize to get into the to try to get into all 23 sites. And some of these sites have 10 endpoints, and some of them have hundreds of endpoints. And that's kinda where I kinda gave you, hopefully, way more information to kinda let you know what our approach to the market is now, instead of trying to do an eighteen month deal that might take eighteen months for a million dollars, try to get it seeded and see if we can move things along a little quicker.

Speaker 4

So are there any other concrete plants or group of plants that you're currently dealing with? Or this is just your entry is just dealing with this one concrete?

Speaker 2

So the concrete plants, these customers are coming from the resellers. So when we do a local event, the that customer will show up to the regional event. We'll get to talk to them and tell them what we have to offer. And then they they allow us to come in, do a POC, POV, and then, you know, that's where it goes. It's kind of, we're not dictating the customers, the resellers are dictating who they're bringing to the table.

Speaker 2

Now, in our own, once we have success with that industry, of course, we're gonna go out and try to market to that industry because we already have a credible reference.

Speaker 4

Well, does that back feed through the resellers' channels then where they start going back to concrete plants who who are customers and saying, hey. You know, these other folks did this. You you might wanna look at it. Or no idea. We would hope so.

Speaker 2

Yeah, we would hope so. We're doing joint marketing events with these individuals based on success we've already happened. So we're talking at high levels at these organizations. So when we do a marketing event, you know, we can do it at the 75 locations instead of just doing it at, you know, one location. Yeah.

Speaker 4

Alright. Well, thanks a lot for the added color. The release was great. I'm glad to hear that the current quarter is rocking, so all sounds good to me. Thanks again, guys.

Speaker 2

Have a good one. Talk to you soon.

Operator

Thank you. Your next question is coming from Joseph Nergis. Joseph, your line is live. Please go ahead.

Speaker 5

Yeah. Good morning, guys. How are you today?

Speaker 2

Good morning, Joe. One

Speaker 5

quick, one quick question. You know, we released this product in, I guess, about July '23. I talked about AZT Protect. And Yep. Over the ensuing well, I guess, now we're twenty five months into it.

Speaker 5

We we put quite a bit of r and d. I'm assuming a great a fair amount of that r and d is directed at AZG. And can you maybe elaborate where we are with that software today? Where, you know, what what have we added? What features have we added that might be, make make it a more compelling product today than it was in '23?

Speaker 2

Okay. Well, the first release was XP, the server 2022, and it had one countermeasure to stop ransomware and malware. Today's version, it's Windows and Linux, all the way XP to 2025 releases, and it's one universal agent, you you know, to both Microsoft and Linux. It's, it also has ARM core support now, which the old version did not. This has 14 countermeasures compared to the one to stop all forms of, like, code based attacks, including nation state.

Speaker 2

It also has the USB lockdown. It also has host based micro segmentation to remove threats of lateral movements. It also integrates into IT SIMS, so that was there. And there's probably another 30 plus little additions that customers wanted. So, yeah, there's been a lot of changes from version one to to this version.

Speaker 2

So that's where a lot of the RD is. And a lot of this came from what customers' needs were. Right? Yeah. So we feel we're in a pretty good position right now.

Speaker 4

So That's what

Speaker 2

we have.

Speaker 5

I'm assuming, that we there's not too much that we can't do. You you kinda mentioned in the in the cell tower application that that that's something quite different. Right? A a little bit where where we were talking about the black box being or the microcomputer that was on these towers was very small CPU capacity, limited storage, and our software kinda work. But are we are we tweaking our software at all to work with that that that environment?

Speaker 5

That do we have are we doing any r and d to make that work?

Speaker 2

We we're actually doing yeah. We have to make some some changes because what we're doing is I I don't wanna give too much information about what we're gonna be loading it at at the facilities when the box is being burnt in at at the core. So we had to make our software work as they built the gold image that rolls out these systems. Same thing with the cameras, same thing with there. So it's all Linux based on Linux different versions of Linux.

Speaker 2

So, yeah, there there's been, some work, it hasn't been a lot for us to do, to be honest with you, but working with third parties that are in other countries has been the difficult part, getting them to move as fast as we move here. But the work hasn't been, you know, overwhelming for our engineers. Let's just put it that way.

Speaker 5

But and you kinda alluded in in in your presentation that that that what we're doing might be something that we can utilize in other areas or other customers that maybe our competition can't. Am I correct? And that's what you kind of alluded to in the

Speaker 2

Yeah, absolutely. Yeah. And that that Linux space that we're at, you know, the way we're doing things, no one else is doing it the way we're doing it right now. So that's why we have, you know, the the people we're working with. ORIX is very excited with the way we go to market and the way we're able to work with their end user customers.

Speaker 2

You're talking about putting this out to tens of thousands of cell towers over the next twelve to eighteen months.

Speaker 5

And and I'll just one more follow-up. There's a third party here. There's the cell tower. There's a visual security. But but, again, we go back to the black box.

Speaker 2

Yeah. There's a third party that that makes that box.

Speaker 5

Yeah, do we know whether or not those boxes are being utilized outside of the cell tower industry? Do we know that other customers Yes,

Speaker 2

yes.

Operator

Yes.

Speaker 5

There's a possibility is there a possibility of working with them?

Speaker 2

Correct. Yes.

Speaker 5

Alright. Well, thanks a lot. I'll I'll I'll go back and listen to what other people ask. Thank you, guys.

Speaker 2

Thank you, Joe.

Speaker 3

Thank you, Joe.

Operator

Thank you. And as a reminder, if you'd wish to join queue at this time to ask a question, you may press star one on your keypad to join the queue. Our next question is coming from Mike Price. Mike, your line is live. Please go ahead.

Speaker 6

Good morning. Thanks for taking my questions. You mentioned the early success for ORIX that you talked about the resellers for Rockwell. What about some of the other resellers? I would have thought in particular UFT protecting water facilities would have been a big one, but you don't talk about that at all.

Speaker 2

Yeah. We could talk about that too if you got yeah. We we've made some progress with them. I under some NDA stuff, I can't tell you much more, but we are making progress with that. There's a way we had to go to market with that company, and we kinda there was a bunch of legal stuff that had to get situated.

Speaker 2

So we kinda pushed through that. And, yeah, we're definitely making progress with them, and we look forward to, you know, some real success in 2026 in our current year.

Speaker 6

Okay. And you once identified the OT market as being potentially $50,000,000,000 And all along I thought that when this catches on, there's going to be exponential growth. Do you have any projections going out twelve, twenty four, thirty six months as far as ACT revenues? I mean, here we plot along, it's what an 8% increase in revenues for CSPi for the quarter. You're talking about $15,000,000 and in the whole space, it's a negligible amount.

Speaker 6

Do you have any projections that you can, you know, give us what what you're thinking longer term? Not

Speaker 2

that I'm willing to share. No. We have them internally.

Speaker 6

Okay. Alright. Thank you.

Speaker 5

Mhmm. Thank

Operator

you. There are no further questions in queue at this time. I would now like to turn the floor back to Victor DeLovo for closing comments.

Speaker 2

Thank you. I want to thank our shareholders for their continued interest and support. We have momentum heading into the end of the fiscal year due to some recent contract wins and the increased activity we are experiencing and encouraging. The resellers are helping raise AZT Protect name, and it's becoming more widely known, and the relationship with Rockwell ensures this will continue. Our goal is to go out there with maximum effort, close deals, and once installed, grow that base as we are demonstrating with the South African cell tower company.

Speaker 2

We're fortunate to have the TS business that generates the profit to fund the ARIA business, and we look forward to updating you on our progress during the fiscal fourth quarter and full year call in November. Until then, stay safe.

Operator

Thank you. This does conclude today's call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you once again for your participation.

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