CSPI - NASDAQ

Good morning, everyone, and welcome to the CSPI's Fiscal 2025 Second Quarter Results Conference Call. At this time all participants are in a listen-only mode and the floor will be opened for questions following the presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Michael Polyviou.

Thank you, Jenny. Hello, everyone, and thank you for joining us to review CSPI's fiscal 2025 second quarter financial results as well as recent operating developments. The fiscal quarter ended March 31, 2205, today with me on the call 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 will 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 then re-queue, if you 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 terms 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 the statements are based. Factors that may affect the company's results include, but are not limited to the risks and uncertainties discussed in the Risk Factors section of the Annual Report on Form 10-K and 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 Dellovo, Chief Executive Officer. Victor, please go ahead.

Thanks Michael and good morning everyone. Despite an unusual operating environment, our fiscal second quarter revenue was $13.1 million, met our internal budget and expectations. The results reflected a slight increase in product sales and a decline in service revenue as compared to last year's period due to a single multi-million-dollar deal that wasn't repeated this quarter. Excluding that deal, we achieved solid double digit service revenue over the prior year period. However, a six figure 12-month customer support contract was signed during the second fiscal quarter relating to their multi-million-dollar deal that occurred last year. A

Thanks, Victor. For the second quarter ended March 31, 2024, we reported $13.1 million as compared to $13.7 million for the prior year. Service revenue represented $4.6 million of overall sales compared to $5.2 million of overall sales during the year ago period. Gross profit for the three months ended March 31, 2025 was $4.2 million or 32% of sales compared to gross profit of $6.2 million or 45.3% of sales for the quarter ended March 31, 2025, reflecting higher component costs in the product side of the business. And there was a single multimillion dollar sales contract at a high margin recognized in the fiscal 2024 second quarter. Our overall operating expenses were essentially flat with the prior period. We had a tax benefit of $683,000 due to excess tax benefit of restricted stock awards that vested in the quarter and tax credits, which we expect to be utilized against our federal and state taxes. We had a loss for the quarter of $108,000 or $0.01 per diluted share the fiscal second quarter. For the six months, our revenue was $28.5 million versus $29.1 million for the first six months of fiscal 2024. We had a net profit of $341,000 or $0.04 per diluted share of common. The company continues to maintain a robust balance sheet as of March 31, 2025 and had cash and cash equivalents of over $29 million. The higher cash balance relative to our liabilities enhances the company's resource to pay a quarterly cash dividend while executing growth, which includes the continued rollout and market awareness of the A

Thank you very much. [Operator Instructions] Thank you. Our first question is coming from Joseph Nerges of Segrum Investments. Joseph, your line is live.

Thank you. Good morning guys. Now I got to lead this. I've got two people I got it wrong. Brett called me – Brett Davidson called me. He's got a dental appointment, emergency dental appointment, so I've got to ask questions for Brett, too. Well – and I think you've covered much of what he wanted to know in your remarks, Victor. He was asking for some more color on the backlog for A

No, no, no. Like I said, the pipeline is growing. We continue to talk to new customers and the pipeline is – the total pipeline is in different stages. We cut it out to four different stages, and we have different deals and they're all at different levels of the sales process. So I'd rather just not comment on that, and tell Brett, he can call me if he had any other questions.

Okay. And the other question he had was on the cruise ship business. And of course, you mentioned that, too, i.e., is it continuing? Do we see more? And you said not only the cruise ships, but also the freighters, right, you were doing, and so, and that's increasing or is it pretty steady or?

Yes, it's been steady. As we continue to modify the ships, we get another one or another two, it's on their schedule. So we actually never know what's coming. It's just depending when the ships are going to be on land, dry dock, as they call it, yes.

Okay. Well, I'll go to my quick question here. This is on a cell tower contract. And I'm particularly interested in Gary Southwell's comment in the contract, he said other solutions were considered less effective and too complex to operate. I guess my question is, do we have something unique here where we can go – or is the cell tower thing unique in itself? Is this company unique, where we can go after more cell tower companies that have the same structure, if you want to call it, the same endpoint needs?

We were unique because the amount of space we take up on the cell tower, because they don't – it's not like they have a huge computer sitting there. Right. The amount of space and the amount of CPU power was very attractive to them because, like I said, those cell towers, they have limited CPU and storage on each cell tower. So that was a big, plus we work in Linux, where some of the companies don't. And some of the versions of software were a little dated also. So that was one of the perfect customers. I think that's kind of why it might have moved as fast as it did just because we had a lot of checkboxes right out of the bat – on that particular one.

So a follow-up would be do the other cell. Do we know if other cell – companies have limitations on their towers? Let's say storage.

We're reaching out to those different companies. Some of them are not calling back right at this second, but we will continue to reach out to various companies that we did some research on that is similar to the company in South Africa.

And just one other quick thing from. I'm going back to your letter, the December letter where you talked about the cloud-based projects you had, I guess at the time 14 [ph] at the end of the year. Is that still. Do we still have a pretty sizable backlog of cloud-based projects?

Yes, it's definitely more than 14. It's probably in the 20s right now. I don't know the exact number. Yes.

Okay, well, I'll drop back and let somebody else ask a question. Thank you, Victor.

Thanks, Joe.

Thank you very much. [Operator Instructions] Okay. I'm not seeing anyone else in the queue for questions, so I will now hand back over to Victor for any closing comments.

Thank you, Jenny. I want to thank our shareholders for their continued interest and support. We have some momentum heading into the second half of fiscal year due to some recent contracts and I believe the increased activity we are experiencing is encouraging. With each passing quarter, the A