CSP Inc.

Greetings. Welcome to the CSPI's first quarter fiscal year 2026 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal 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, Michael Poliviu. You may begin.

Great, thank you. Hello, everyone, and thank you for joining us to review CSPI's initial results for the fiscal 2026 first quarter, which ended on December 31, 2025, as well as recent operating developments. Today with me on the call is Victor DeLobo, CSPI's Chief Protective 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 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 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 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 factor section of the annual report on Form 10-K and the quarterly report on Form 10Q, File Series and Exchange Commission. Forward-looker 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-looker statements are qualified in their entirety by this cautionary statement and CSPI undertakes no obligation to publicly revise or update any forward-looker 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 DiLello, Chief Executive Officer. Victor, please go ahead.

Thank you, Michael, and good morning, everyone. As expected, our first quarter product revenue compared to prior year period reflects tough year-over-year comparables, which obscures the progress we continue to make executing on CSPI core growth strategies in building long-term shareholder value. In the year-ago quarter, we recorded approximately $4.5 million in a one-time product deal that did not repeat in fiscal Q1, 2026, resulting in the decline in total revenue. As I've emphasized on prior calls, our strategic focus is on expanding service revenue and growing our MRR base. In the first quarter, service revenue, driven by ongoing momentum in the technology solution and managed service practice, grew 14.6%. This strength translated into a meaningful improvement in our overall gross margins, which reached 39.3%. The higher margin profile contributed to 171,000 increase in gross profit versus the prior year period. We also continue to gain traction in the market with a differentiated and award-winning AZT Protect cybersecurity solution, supported by both new customer wins and multi-site expansion with existing customers. Overall, our fiscal first quarter results reinforce our confidence that fiscal 2026 is shaping up to be a growth year for CSPI. Our technology solution business continues to lead our progress. Our offerings increase the efficiency and effectiveness of our customers' IT investments in networking, wireless mobility, unified communication, and collaboration, data centers, and advanced technology security. And while all RTS services are performing to plan, our managed cloud and managed service practices continue to excel. We are benefiting from the ever-expanding business and organizational migration to the cloud, and the increased trends for enterprise of all sizes to acquire operation support required once the migration is complete. The primary factor behind this market driver is the growing complexity of the cloud and the unique and specific needs of each enterprise. Microsoft, through its Azure offering, is considered to be the market leader in this space. And our MSP practice is a platinum partner with the company. During our last call with you in December, we mentioned the increased investments we were making in the managed service practice. We have already begun to generate returns from the investment through the signing of new customers. In Q1, we signed new MSP customers that will generate nearly six figures in monthly revenue commencing this quarter. This traction has continued into the second fiscal quarter as we look forward, look out over the remainder of the year. We believe our service segment momentum can continue. Meanwhile, based on our best in class services, Our customer's retention rate remains extremely high, contributing to expanding our gross margins in the service segment. We also achieved meaningful traction with our AZT Protect product suite in the first quarter, delivering year-over-year revenue growth while we are still progressing towards the full market opportunity for our cybersecurity solutions. The quarter reflected several encouraging developments. We secured multiple new sites, customers for AZT, and through our strategic partnership and distribution, continue to expand our pipeline of prospective deployments. Despite being in the market with the RA-AZT for just over a year, we now serve over 46 unique customers, some of whom have multi-site installations on the way and additional expansion opportunities. These customers span a broad range of verticals, including steel energy, manufacturing, water utilities, pharmaceuticals, food, and telecommunication. Importantly, many of the highest value multi-site opportunities, each with potential to develop into seven-figure relationships, remain ahead of us as customers advance through their respective procurement and deployment processes. We have already received approval