管理層發言
Good day, everyone. Welcome to CSPi's Third Quarter Fiscal Year 26 Conference Call. At this time, all participants are in a listen-only mode. After the presentation, it is now my pleasure to turn the floor over to your host, Michael Polyviou. The floor is yours.
Thank you, Kelly. Good morning, everyone, and thank you for joining us to review CSPi's initial results for the fiscal 26 third quarter which ended on June 30, 2026 as well as recent operating developments. Today, with me on the call is Victor J. Dellovo, CSPi's Chief Executive Officer and Gary W. 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 please requeue if you have additional questions. In advance, thank you for your cooperation with this process. 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 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 can influence the accuracy of the statement, and the projections upon which 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 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 statement whether as a result of new information, future events, or otherwise after the date thereof. With that, I will turn the call over to Victor J. Dellovo, Chief Executive Officer. Victor, please go ahead.
Thank you, Michael, and good morning, everyone. Our Technology Solutions business performed near our expectations during the fiscal third quarter, reflecting solid growth in our cloud and managed service business. However, our third quarter financial performance was impacted by what we believe are two relatively short-term factors. First, while the Technology Solutions business continued to generate solid order growth during the quarter, our ability to convert those orders into revenue has been impacted by longer hardware vendor delivery times. In many cases, vendor deliveries that historically took 30 to 60 days are now extending well beyond 200 days. As a result, our Technology Solutions backlog is now 65% higher than it was a year ago. The second factor impacting our top-line performance is the continued ramp of our AZT Protect business and the longer sales cycles associated with larger enterprise opportunities. We made meaningful progress during the quarter. However, I believe we can and will do better. As we pursue larger accounts, we continue to add new land-and-expand customers while expanding relationships with existing customers as our customer base grows. We continue adapting to each customer's unique deployment timelines and procurement processes for rolling out additional protected sites after the initial installation. We recognize that every customer has different priorities, and often multiple competing projects that can delay expansion. Our ability to execute within this environment continues to improve. We believe several initiatives will position us to expand both the number and size of AZT Protect opportunities over the next six months. First, we are nearing the end of the 18- to 24-month sales cycle for several large six-figure opportunities and remain optimistic about converting a number of those into contracts. Second, we continue to see growing opportunities for AZT Protect to become part of an OEM customer solution. During the quarter, we completed the integration of our AZT Protect into several OEM products and are beginning to see a growing pipeline from this market segment. While OEM sales cycles are lengthy, they create attractive long-term recurring revenue opportunities once integrated. A good example is our relationship with Acronis software, where the integration has been completed and we understand marketing materials and SKUs are on track for a fall launch. Another example is the work in South Africa, where our OEM partner, a large telecommunications customer, is now working on a third purchase order with an AZT Protect embedded in the deployed solution. With the integration challenges and unpredictable timelines largely behind us, we are making meaningful progress in the South African telecommunications market. We are applying the lessons learned from this deployment to other OEM-led relationships currently under development and expect continued progress in this segment over the coming quarters. A third initiative implemented during the quarter was the continued evolution of our direct sales organization focused on Fortune 500 customers. Our experience with distributors, OEMs, and large direct customers has reinforced that our sales organization must effectively serve all three channels while addressing the unique requirements of each customer. We believe the changes made during the quarter better position our sales team to shorten the sales cycle, broaden the sales funnel and improve execution as we enter into the new fiscal year in October. We remain committed to the land-and-expand strategy. Our approach is to secure the initial deployment at one customer site, validate AZT Protect performs as expected within the customer's existing cybersecurity infrastructure, and then deploy across additional sites. This expansion phase has taken longer than anticipated, largely because of the evolving stakeholder alignment and internal review processes. But we believe our enhanced sales organization will help accelerate expansion by engaging higher-level decision makers within customers' organizations. Changes within the customer organization often require us to rebuild momentum. While some customers seek additional validation before approving broader deployment, in other cases, IT organizations initially believe their existing infrastructure adequately protects OT environments when expansion opportunities become larger enterprise projects. This creates an opportunity for us to educate customers on the unique requirements of operational technology. The data we have collected from existing deployments combined with strong customer references has enabled us to build a compelling business case demonstrating why AZT Protect is a better solution for OT environments. While these dynamics are a natural part of selling into complex and evolving markets, we believe we are becoming increasingly effective at influencing the customer's decision. We made solid progress with AZT Protect during the third quarter by signing new customers and expanding deployments within existing accounts. In addition, we achieved a 100% renewal rate on all customer sites reaching their one-year renewal period. We have also advanced into final stages of the selection process within several major corporations, as demand continues to be supported by the growing number of cyber attacks disrupting operations worldwide, as well as increased awareness of AI-driven threats and so-called friendly-fire incidents generated by internal systems. Traditionally, cybersecurity solutions rely heavily on continuous patching, which is often impractical in OT environments. Friendly-fire incidents where IT inadvertently sends faulty updates into production environments can be just as disruptive as an external attack. AZT Protect prevents these production disruptions while eliminating the need for ongoing OT application security patching. To date, no AZT Protect customer has experienced a breach. We have also developed an extensive catalog of AI-driven exploits emerging through 2026 that AZT Protect is designed to stop. One highly publicized example was the OpenAI ChatGPT-related attack involving Hugging Face. Based on the publicly available information, we believe AZT Protect would have prevented the attack, and we have publicly shared those findings. We continue to believe AZT Protect has little effective competition in defending against these emerging AI attacks while eliminating the need for code-level security patching in OT environments. We remain intensely focused on expanding our sales opportunities as we enter the new fiscal year. Turning to our Technology Solutions business, it once again served as our primary revenue generator despite ongoing hardware shipment delays. Our offering continues to improve the efficiency and effectiveness of our customers' IT investment across networking, wireless, mobility, unified communication, data center and advanced cybersecurity. Our managed cloud and managed services practice continues to grow at a healthy pace. We continue to benefit from the ongoing migration to the cloud and the increasing demand for managed operational support after those migrations are complete. A key driver remains the growing complexity of cloud environments and the unique requirements of enterprise customers. During the quarter, we entered the professional sports market with the signing of a six-year, seven-figure managed service agreement with a nationally recognized sports team. We expect to issue a joint press release in the coming weeks. We also signed a three-year managed service agreement with a food distribution customer expecting to generate mid-six-figures of annual recurring revenue. Looking ahead, we believe our best-in-class service organization, exceptional high customer retention, and continued adoption of cloud-based services will drive further service growth and support continued gross margin expansion. During the quarter, service gross margin increased 1.3 percentage points compared to the prior-year period. While we recognize there is still work to do before fully realizing the value of our award-winning product in customer service, we have made significant organizational improvements that position us well for continued growth. With that, I will turn the call over to Gary to discuss our financial results in more detail.
Thanks, Victor. For the third quarter ended June 30, 2026, we generated $14.4 million in revenue compared to $15.4 million in the third quarter ended June 30, 2025. Product revenue was $9.9 million compared to $10.2 million for the prior fiscal year third quarter. Service revenue for the quarter was $4.45 million compared to $5.3 million in the prior year, reflecting the vendor delays issue mentioned earlier. Gross profit for the quarter was $4.3 million compared to $5.45 million for the same prior year period. Gross margin for the third quarter grew by more than 100 basis points to 30.1% of sales compared to the year-ago fiscal third quarter. Gross margin was 28.8% for sales in the prior year's third quarter. Gross margin realized from product revenue for the quarter was 20.7%, compared to 15.7% for the third quarter of fiscal 25. Gross margin realized from service was 51.2% as compared to 53.9% for the year-ago quarter. Research and development expenses increased 5% to $832 thousand compared to $791 thousand the same prior year quarter as we supported customization of the AZT Protect deployments and OEM embedding developments. Selling, general and administrative expenses for the fiscal third quarter increased 3% to $5.0 million from $4.9 million a year ago. The company grew other income during the quarter by 58.7% due to the increase in physical transactions with customers, an increase in variable compensation to the Technology Solutions division, and costs related to the buyout sale of the UK pension which increased our operating loss for the quarter to $1.5 million from $1.2 million in the prior fiscal third quarter. With the other income earned, our net loss was $846 thousand or $0.09 per share of common for the third fiscal quarter compared to a net loss of $264 thousand or $0.03 per share of common in the prior year's third quarter. Our strong balance sheet continues to provide us with resources to finance customer purchases and as of June 30, 2026, we extended terms on over 20 transactions. We finished the quarter with cash and cash equivalents of $24.7 million. The balance sheet continues to provide us with the necessary resources to execute our growth strategies for the managed service business and the AZT Protect product offering as well as paying a dividend of $0.03 per share and we purchased approximately 13 thousand shares of common stock during the quarter. Turning to our results for the nine months of fiscal 26, revenue was $42.4 million compared to $44.3 million in the same period of the prior year. Gross profit for the fiscal nine months ended June 30, 2026 was $13.5 million or 31.9% of sales compared to $13.2 million and 29.9% of sales. The company generated $1.4 million in other income and realized a tax benefit of $654 thousand during the first nine months of fiscal 26. During the same period of fiscal 25, the company generated $1.1 million in other income and realized a tax benefit of $1.5 million. The company's net loss for the nine months of fiscal 26 was $491 thousand or $0.05 per common share as compared to a net income of $100 thousand, or $0.01 per diluted common share for the comparable period during fiscal 25. Lastly, the board of directors approved a dividend of $0.03 per share of common to be paid on September 15, 2026 to shareholders of record on August 28, 2026.
We will now take your questions.
分析師問答
Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset rather than listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for questions. Your first question is coming from Joseph Nerges with Segren Investments.
Good morning, guys. How are you today?
Good, Joe.
Let me dive in on the OEM direction you are going. I am assuming that Acronis would be the one OEM you are talking about currently, right? And is there an OEM you were referring to in the Internet of Things area that you are dealing with in that respect?
There are others that we are in the process of working with as well. There are a couple of OEMs we are dealing with where they make boxes and we are trying to get integrated on their platform. There are other OEMs in South Africa that make different equipment which I cannot mention right at this second, but they make certain equipment which again we are trying to get embedded on their product so that as soon as the product goes out the door, we are there, we turn up the license and do a true-up every month or every quarter.
Any additional OEMs in the U.S.?
Yes. There are three other OEMs in the U.S. right now we are talking with at different stages.
Okay. And I have one other question on that. We announced the Acronis deal back in September last year. You mentioned in the call the length of it is taking to embed these things. Do we envision that same length on these other deals? I mean, a year seems like a long time, almost a year. Are we hoping that we could shorten that process?
It is not us, Joe. It is never us. It is always them, to be honest with you. They are larger organizations that truly move at a slower pace, just due to the fact of pure size, sign-off and various things. It is never us. We are always there quickly. We are always waiting, let's put it that way. There is nothing else I think we could possibly do to speed these large, multibillion-dollar companies to move faster. Because of our size it is hard to move these guys. I can promise you we do stay on top of it constantly, maybe multiple times a week, to try to move things along as fast as possible. With Acronis, it is out of our control — 95% of it is out of our control. Anything we can control, we have a plan, we have a timeline, and we try to meet it.
Just one other thing, and this goes to another point. The Hugging Face attack — the press release on Monday — I do not think some people realize we have a partnership that we have not publicly announced with a very large partner that deals quite heavily with the federal government. This partner also, from my research, has an embedded cybersecurity lab. I am just wondering, have we talked to this partner about getting a test with the government somehow?
Again, I know who you are referring to, which I cannot mention, but we do talk to them. We have standard calls every two weeks. Because of their size we have to move at their pace. What they tell us is a minimum of what goes on between them and the government directly.
I have no idea who exactly they are, to be honest with you. But finally, we have something that might appeal, let's put it that way. If nothing else, somebody at the government level. That's all I am saying.
If you can finally get through the bureaucracy of these larger organizations, I think that is why we put that out — to let everyone know that compared to some other products that are out there that are not stopping these various viruses or attacks, because of the way our technology is built, we are designed to stop these things. I think that was more of an educational press release for either people looking at a product or to build confidence for different customers already using the product.
One more question. Recently, a lot of attacks in the last couple weeks against utilities, water and wastewater utilities. With partners like UFT, and I see we signed another partner with SITCO, have we gotten any feedback from those partners in the last couple weeks with what is happening in that area, as far as customers looking to update their cybersecurity?
Yes. We have a standard call with UFT. SITCO is a newer company that we signed up, so that relationship is still maturing. We have a good long-term relationship with UFT, because not only are they a cloud customer of ours — that's how the relationship started probably four or five years ago — but because of Tesco, one of the companies they own that concentrates on water and wastewater plants, that is how they became a reseller for the product. Again, because of their size, they have a process. The process was: get through legal, which takes a long time; get it into their lab, which took a while; and then they wanted three customers of theirs to use the product for a period of time before they presented it to all their customers so that they had confidence AZT would work across different products, whether it's Siemens, Emerson, Honeywell, you name it. Their goal is to sell it as a product and service directly from their sales team and to have confidence that it would represent them correctly. That has taken about nine months now. We will be announcing some new things together in the next two or three weeks.
Alright. Thanks. I will get back in the queue.
Thank you, Joe.
Thanks, Joe.
Your next question is coming from William Lauber with Visionary Wealth Advisors. Please pose your question. Your line is live.
Yes. Victor, can you expand a little bit on the salesforce changes and the new strategy? I noticed from LinkedIn that a number of the salespeople who were there last year are no longer with you. Can you explain the development in the salesforce and what the new strategy is in a little bit more detail?
Yeah. It is not a new strategy. It is because of the sales cycle and because individuals have their own financial capacity for how long they can wait for a sale to close. We needed salespeople who are used to a longer sales cycle that came from the marketplace, and that is what we ended up doing, replacing three out of the four salespeople that left the organization. One of them is already up and running, one started this week, and one starts next week. We are still focused on OEMs; that's a specific business. We are working through all the resellers as we normally have, but we are also putting heavy emphasis on us talking to the customers directly to try to move things along as fast as possible. It is not always easy for the resellers to give us contact info, but as time goes on the trust builds, so they know we will treat that customer with white-glove service.
Would it be safe to say the salesforce is going to be compensated more on commission rather than salary? Also, regarding the 18- to 24-month sales cycle, is that because customers are in contracts with other cybersecurity providers and are waiting for renewals, or does it just take that long for testing and approval with big companies? What is the driver of that long sales cycle?
Regarding compensation specifics, we can discuss that offline. On the sales cycle, it's a combination of both. Sometimes it's because a customer is coming up for renewal or replacement of older systems, which drives them to look. A lot of it is also political. You have OT teams who love the product and want to move quickly, and IT teams who control the budget and move more slowly. IT will bring it into a lab, take their time, and run their processes. We've learned that if it comes from IT we must engage immediately because they control the purse strings and make the ultimate decision. There is no single pattern — we've closed some businesses much faster, for example in wastewater we closed some in six weeks — but the large, $700 thousand to million-dollar deals can take 12 to 24 months.
Understood. With Acronis, I know they have done joint webinars with you even before the product was integrated into their system. Have you gotten any indication as to the level of interest they're seeing from their customers?
We kind of had to put everything on hold because their sales team could not sell it until it was integrated. Getting products integrated into their system takes quite a bit of time — it touches multiple systems and is a process. They did significant testing and needed the SKUs in place. We will need to reengage with their sales and renewal teams once integration is complete. The Vice Presidents of Sales told us to slow down until everything is fully integrated and the SKUs are available. The promise is by October 1 everything should be integrated and then we will go full steam ahead to educate the sales team and push it out globally.
Okay. I will go back in the queue.
Thank you. Your next question is coming from Mike Price. Please pose your question. Your line is live.
Good morning. Can you give us an idea of what the completed product integration with the Acronis software means when it is totally rolled out in terms of revenue? What are we going to see from that?
I have no idea yet.
Okay. And can you tell us how much of the receivables are being financed, both short and long term?
It is broken out on the filings. It's probably about 30% to 40% longer term. The dollar amount depends on the quarter.
Last quarter it was $7.7 and $8.6 over a year. What is it now?
Right now it is $8.3 million on the longer, over-a-year receivables.
So effectively the receivables that are financed are going to become cash. If you add cash and financed receivables together, that is about $40 million, correct?
Yes, exactly.
Okay. How many shares were repurchased last quarter?
Approximately 13 thousand shares.
Is the intent still to buy shares, especially at this price?
Absolutely.
I appreciate the press release about the OpenAI/Hugging Face situation and that AZT could have prevented that attack. You mentioned retention is 100% which is impressive. Is there not somebody CSPi can partner with who can move the needle on multibillion-dollar companies faster than what we have seen?
We are trying to do that. That is why we are working with Rexel, DataComms and the large distributors like CEDs and ePlus because of the relationships they have. We're leveraging those resellers to walk us in as one of their premier partners. The trust with those salespeople must be built over time; they only have a few large customers each, so it takes time to get them to hand-hold us into the enterprise. Our pipeline has grown tremendously from quarter to quarter with real companies and real budgets. The team has done a great job keeping momentum on some of these large opportunities. On the South African side, there are many strong opportunities we've been working for several months. When I started in this space I underestimated how long it would take because the OT world moves differently than IT. We are leveraging every partner and resource to build rapport with end users, but there is a process: multiple labs, long testing periods such as 90 days, and purchasing processes that must be navigated.
Thanks, Victor. I appreciate your diligence.
Yep. Appreciate it, Mike.
Your next question is coming from Brett Davidson with Investletter. Please pose your question. Your line is live.
Good morning. The router ban by the U.S. government on foreign-made routers — is that impacting the delivery of product?
Not for us. Those are just specific name brands. The broader issue impacting us is that with the AI build-out, memory, hard drives, processors — everything is taking a long time.
Average deliveries are around 200 days right now compared to 30 to 60 historically, correct?
Yes. Compared to 30 to 60 days, they're running about 200 days now. We keep closing business and the funnel will keep growing; when the product is released we will process it. We do not make the product, so we have no control of deliveries.
Do you anticipate getting caught up over the next six months, or is this just going to be an ongoing dribble of inventory for a year or more?
I would say at least a year of this. I don't have a crystal ball; as long as the big buyers keep purchasing, this will take time to flush out. My goal is to keep building recurring revenue in MSP, cloud, and AZT — the areas I can control. The hardware side is important but outside our control.
Has this impacted gross margin and the ability to recognize revenue?
Yes, it held back revenue recognition and impacted gross profit. That's a big piece of why we were off for the quarter. Our backlog increased about 65% year over year.
Alright. Thanks so much.
Thanks, Brett.
Once again, if there are any questions or comments, please press 1 on your phone at this time. Please hold a moment while we poll for any additional questions. You do have a follow-up question from Joseph Nerges with Segren Investments. Please pose your question. Your line is live.
Yeah. Just one more question. Gary, you mentioned that we bought out the UK pension. Is that correct?
We sold it to an insurance company. We bought out the pension and sold it — yes.
Okay. What did that cost us in the quarter? A couple hundred thousand?
There were actuarial and legal costs. It was a couple hundred thousand dollars.
So we're finished with that long-term pension liability since the German operation was sold long ago and the U.S. operation doesn't have that same issue?
We have life insurance that funds that indirectly. It's not part of the pension, but our pensions that remain in the company are funded through that. The cash surrender value is on the balance sheet.
Okay. Alright. Thank you very much. Appreciate it, guys.
Yep. Yep.
Thanks, Joe.
There are no additional questions in queue at this time. I would now like to turn the floor back over to Victor J. Dellovo for closing remarks.
Thank you, everyone, for joining us today. We continue to work towards maximizing our value for the remainder of fiscal 26 and fiscal 27 both on the service side of our business as well as with AZT Protect, and we look forward to reporting our progress with you. In the meantime, thank you to our shareholders for their support, to our team for their dedication and effort, and we wish everyone a good remainder of their day. Goodbye for now.
Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.