CSP Inc.

Good morning, everyone, and welcome to the CSPI's third quarter fiscal year 2024 conference call. At this time, all participants have been placed on a listen-only mode, and we'll open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Michael Plevue. Sir, the field floor is yours.

Thank you, Matt. Hello, everyone, and thank you for joining us to review CSPI's fiscal 2024 third quarter results, which ended June 30, 2024. With me on the call today is Victor DeLovo, CSPI's Chief Executive Officer, and Gary Levine, CSPI's Chief Financial Officer. After Victor and Gary conclude their opening remarks, we'll then open the call for questions. During the Q&A session, we ask participants to limit themselves to one question and then one follow-up question, and then re-queue if they have additional questions. 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 term is identified and 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 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 assessment of the annual report in Form 10-K and the quarterly report on Form 10-Q-5 with the Securities and Exchange Commission. Overlook of 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 statements, whether as a result of new information, future events, or otherwise after the date they're out. With that, I'll turn the call over to Victor DiLello, Chief Executive Officer. Vic, please go ahead.

Thanks, Michael, and good morning, everyone. Early this morning, we announced our fiscal 2024 third quarter results. And with the supply chain issue well past, I'm pleased to report our business has returned to a more normalized revenue run rate, and we have focused on driving our higher margin business while building the required infrastructure to drive the success of the emerging AZT Protect product line. We have been able to consistently grow the service business and fiscal third quarter with no exception as the service revenue increased 10% and contributed 150 basis points. improvement to the gross margin percentage over the prior year level. The AZT Protect offering has the capability to dramatically reshape our high-performance product business and our entire company. Customer enthusiasm for the product line remains high, and the team is generating leads and building an attractive pipeline. Moreover, we are continuing to extend the brand awareness of AZT product through multiple awards, including being named winner of in the application security category at the 2024 Fortress Cybersecurity Award presented by Business Intelligence Group. Overall, the team has done an incredible job as this was the ninth major industry award for the ADT Protect since the launch of the following follow success at the Cybersecurity Excellence Award, the Global InfoSec Award at RSA and the Globie Award for Cybersecurity. During the quarter, we also signed some small mid-tier manufacturing customers located in the Midwest. We have many other similar opportunities that are being pursued. To ensure we maintain the momentum and remain focused, we recently hired Greg Fisher, an experienced 20-year OT industry sales veteran, as VP of sales to head up the AZT product protect business. Throughout his career, Greg has consistently driven sales, and is known for building and training high-performance teams in complex solution sales and mentoring them to achieve ambitious goals. Greg is already transforming our sales team, and in just a few weeks, his impact is being felt throughout the organization. While our multi-pronged sales strategy includes engaging with Fortune 500 companies, Greg's immediate goal is to ensure we have the right sales team to focus on small to mid-tier enterprise because of the shorter sales cycle. We will continue to pursue larger opportunities directly or through our partners, despite the longer sales cycle, because each one can represent multimillion dollar contract opportunities, like the one we signed in the second quarter, which helped AZT protect awareness in the market. Greg is also helping the team prepare for several upcoming events, such as the American Petroleum Institute Conference taking place in Houston. This conference is the only cybersecurity conference dedicated to oil and natural gas industry and has a loyal and dedicated attendee base. As we engage with the largest oil company in the world in the water treatment plants, the process to evaluate AZT in these large oil and water treatments have taken months. Just to get set up in this system to do a proof of concept or a POC has taken four to six months. The team will also attend the industry industrial control system cybersecurity conference being held in Atlanta. This conference is the largest and longest running event series focused on industrial cybersecurity. Since 2002, the conference has gathered ICS cybersecurity stakeholders across various industries and attracts operations and control engineers, IT government vendors, and academics. We believe these and other conferences are a ripe opportunity for further expand our brand presence within the OT marketplace. We have also successfully executed our AZT Protect partnership program over the past few months. We entered a new integration partnership with Forescout Technologies, which offers comprehensive asset intelligence and control across IT, OT, and IoT environments, trusted by Fortune 100 organizations, government agencies, and large enterprises for over two decades. Forescout serves as a cornerstone for managing cyber risk, ensuring compliance, and mitigating threats. This full integration will take some time, but we believe the opportunity can be huge. In addition, EBRICS, a managed security service provider, performed a lengthy in-house red team evaluation of AZT Protect prior to adding ARIA to its existing portfolio of technology partners. EBRICS is a leading provider of innovative cybersecurity services and solutions to commercial as well as government and public sector customers in North America, EMEA, and APAC regions. Lastly, Worldwide Technology, a large global reseller of IT and cybersecurity solutions, will supply the award-winning AZT Protect solutions to its customers. I believe this approach ensures we are using our resources and those of our partners to significantly raise the profile of AZT offering and build revenue opportunities. In only three weeks, Greg has currently signed multiple resellers, and Greg is confident we can increase the number of OTs focused resellers by December to over a dozen. Locations of these resellers are all over the world, including Chile, Peru, Brazil, Morocco, Norway, India, Australia, and Iberia. Our largest partnership is Rockwell, and we have recently been selected to update the industry on how to measure the cybersecurity risks facing industrial operations and how to guard against them at the Rockwell Automation Fair in November. The event is being held in Anaheim, California, and Gary Southwell, Vice President and General Manager of High Performance Products Segment, will be guest speaker. He will be presenting an in-depth review of the latest attacks techniques and their financial impact. Gary will outline how insurance providers are measuring the risk of how companies can comply with the new insurance and regulatory requirements and will share a range of use cases to demonstrate how companies can apply reduction techniques to reduce measurable risk, including a high-profile ransomware attack on Merck, which resulted in a $1.4 billion impact and led to a lengthy legal battle with its insurers to recover losses. Working with Rockwell, together we will be delivering new solutions to manufacturing environments that complement existing passive and active defense and pick up what they miss. Before I review the technology solution TS business, I want to spend a couple of minutes highlighting the recent CrowdStrike-induced window outage and the opportunity it presents for AZT. While the target market for AZT Protect was initially focused on operational technology or OT, it was always our intent to engage the information technology or IT market professionals. We've had already commenced discussion with IT professionals, so the timing of the outage was a benefit to our efforts. We believe... Had AZT Protect been previously deployed, the outage would have been controlled at the corporate level. It has been estimated that the cost of the outage is in the billions of dollars, and a Delta Airlines CEO has said it costs his company $500 million. We believe companies using AZT Protect's protection capability can prevent both malicious code as well as flawed updating from taking critical systems down. We've proven this capability in the field under real-life operational circumstances. We can ensure that the untested updates do not become active on the systems, helping corporations and organizations at all levels avoid another CrowdStrike type of disaster. It has become the norm for IT applications and cybersecurity vendors to send updates directly to their applications. Unfortunately, as a CrowdStrike event has demonstrated, a few customers test these updates and just allow them to update automatically. Whether intentional or not, untested supply chain updates can wreak more havoc on a critical system than most cyber attacks. If an update to the system puts lives in danger due to the outage, it should not be deployed without some form of verification test. Same goes for servers running any critical business process. The technology solution of business continues to perform well and generate the majority of the quarter's revenue. The success of the TS continues to be driven by our customers' increased use of implementation, installation, and training capabilities. We continue to add new MSP customers, and we are currently awaiting decisions on several big orders that, if they go in our favor, could positively impact our results in fiscal 2025 and beyond. The activity is encouraging and to add more color, we are in the process of implementing a wireless conversion to over 70 to 80 locations of a global hospitality company. This work will continue through 2025. We also are working with one of the largest freight operators specializing in containerized ocean exports serving numerous ports worldwide and we will be double the number of container ships for which we are performing equipment conversions and will continue to be their MSP for each and every ship. We also continue to generate higher levels of interest in our UCAS offering. And during the current fiscal fourth quarter, we already signed several new customers. The momentum with the UCAS is building, and we expect to enter the new fiscal year with an annual revenue run rate that is more than double what it was entering in fiscal 2024. In summary, the strength of the TS business has allowed us to fund and develop AZT Protect. business has three lines of recurring revenue, the UCAS, the cloud practice, and managed service practice. This was a slow methodical process over the last few years, but we now have all three generating consistent profits. We are building the ACT practice with the same methodology and determination as we did with the other lines of business. So I'm highly confident we will be generating consistent profits in the near future. Today we are in the process of deploying additional resources to ensure we have organizational infrastructure to support the business in 2025 and thereafter. ACT Protect has the potential to revolutionize how OT professionals approach their responsibilities in recent events to reinforce that IT professionals also need to be vigilant and ensure their business are not compromised, whether from external threats or third-party software updates. Our commitment to develop, innovate, and high-margin products and services has enabled us to expand our gross margins and grow our cash balance to a near record level. With that, I will now ask Gary to provide a brief overview of the fiscal third quarter financial performance. Gary?