CSPI earnings call analysis

NASDAQ:CSPI Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Operator: 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. Michael Poliviu | Host

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.

Victor DeLobo | Chief Executive Officer

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 Operator

I believe we may have lost Vic.

Michael Poliviu | Host

Gary, are you there?

Operator

Yeah, I'm here.

Michael Poliviu | Host

Ladies and gentlemen, please stand by. We'll get Victor back on the phone.

Yep. Operator

One moment, please. I still see his line connected. I will reconnect it again. One moment, please.

Operator

Yep.

Michael Poliviu | Host

Again, please stand by.

Operator

We're trying to get Victor back on the phone here. Hello?

Michael Poliviu | Host

Victor?

CSPI Marketing Voice

Hello? How CSPI Technology Solutions Professional Services can transform your IT challenges into a business advantage. We offer five core areas of expertise, including network security, wireless mobility, unified communication, data center solutions, and advanced security.

CSPI Marketing Voice

Your IT infrastructure is the backbone of your business.

Michael Poliviu | Host

but managing and maintaining multiple missions... Gary, perhaps we can't get Victor back on the phone, so we continue.

Victor comes. CSPI Marketing Voice

Can strain your resources and get in the way of executing your core business and IT strategy. CSPI Technology Solutions Managed Services Team can customize... We have Victor's line connected.

Victor DeLobo | Chief Executive Officer

All right. Hey, Michael, where did we leave off? I didn't realize we dropped.

Michael Poliviu | Host

Yeah, why don't we just pick up on – well, Victor, it's probably easier if we just pick up from the beginning. If not, we could pick up on the top of page two. Okay. Let's talk technology solutions business.

Yeah. Victor DeLobo | Chief Executive Officer

Sounds good. Sorry about that, everyone. 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 our CS 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 increasing trend for enterprises of all sizes to acquire operation support required once the migration is complete. A primary factor behind the market driver is the growing complexity of cloud and 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 investment we were making in the managed service practice, and we have already begun to generate returns from that investment through the signing of new customers. In Q1, we signed new MSP customers that will generate nearly six-figure in monthly revenue commencing this quarter. Distraction has continued into the second fiscal quarter, and we look over the remaining of the year, and we believe our service segment momentum can continue. Meanwhile, based on our best-in-class services, our customer retention rate remains extremely high, contributing to our expanding gross margin 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 opportunities, for our cybersecurity solution, the quarter reflects several encouraging developments. We secured multiple new site, initial site customers for AZT Protect, and through our strategic partnership and distribution, continue to expand our pipeline of prospective deployments. Despite having been in the market with AZT for just over a year, we are now serving 46 unique customers, some of who 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, pharmaceutical, food, and telecommunication. Importantly, many of the highest value multi-site opportunities each with the potential to develop into seven-figure relationships, remain ahead of us as customers advance through their respective procurement and deployment process. We have already received approval to proceed at several second and third sites, and our team is focused on rapid execution to demonstrate the substantial value AZT Protect delivers in preventing cyberattacks that otherwise can disrupt operations for hours days or even weeks. The case studies developed from our initial industry installations are helpful getting our target customers to understand how exposed they are to operational disasters and how AZT Protect uniquely acts to prevent such disaster. For some, they are learning of the risk as operational technology customers continue to lack effective cybersecurity protection at the level AZT Protect provides. Unfortunately for many, they don't realize their exposure until it's too late, and they are exposed. We continue to believe we have a strong competitive advantage in the space and believe that the market is starting to see us as a resource. The unique procurement process and development criteria for each customer previously mentioned has resulted in various timing delays, which we continue to work through. Our team is resilient and committed, and we aren't letting up. We continue to believe the effort will result in sizable AZT Protect sales for the fiscal year unfolds. In addition to expanding direct pipeline, we are advancing strategic OEM relationships, most notably with Acronis, as they work to embed AZT Protect into their platform. While these integrations require time to mature, they represent highly scalable opportunities with substantial long-term potential. We also conducted our first webinar this quarter with Acronis, which drew nearly 200 attendees and generated more than a dozen demo requests. Engagement levels were strong, reinforcing our view that this go-to-market motion will be an important contributor to our long-term growth trajectory. In summary, we are off to a solid start for the fiscal year, with particularly strong performance in our service business. We remain on track to deliver steady, profitable improvements throughout fiscal 2026. Supported by the infrastructure investments we have put in place to enable meaningful scale. As a result, we expect to generate substantial operating leverage as revenue grows. With that, I will turn the call over to Gary to discuss our recent financial results in more detail. Gary?

Gary Levine | Chief Financial Officer

Thanks, Victor. Where the fiscal first quarter ended December 31st, 2025, we generated $12 million in revenue as compared to 15.7 million for the year ago fiscal first quarter. Product revenue for the fiscal first quarter of 2025 was 6.7 million compared to product revenue of $11 million for the fiscal first quarter of 2025. Last year's revenue total for the quarter included several one-time transactions with customers totaling approximately $4.5 million, and we didn't have any product orders of that magnitude in the first quarter of this year. Service revenue for the first fiscal quarter increased 14.6%, to $5.3 million from $4.7 million in the year-ago fiscal first quarter. Gross profit for the fiscal first quarter was $4.7 million versus $4.6 million during the fiscal first quarter of 2025. The solid service revenue growth and mix during the quarter drove the gross profit margin increase. Gross profit margins for the first quarter was 39.3% of sales, which was slightly more than 10% higher than the gross margin for the prior fiscal first quarter of 29.1%. Energy and development expenses increased 9.2%, or $858,000, compared to the same period of the prior year as we supported the customization of the AZT Protect deployments and OEM embedding developments. Sales in general and administrative expenses for the fiscal first quarter declined $143,000 to $4 million for the year-ago first fiscal quarter. The company had increased interest income that increased 23% over the prior year on our financing deals and interest on our cash. The company recorded a tax expense of $280,000, which represented a year-to-date effective tax rate of 75.5%. The differential between the company's effective tax rate year-to-date and the U.S. statutory tax rate of 21% is primarily due to state income taxes, changes in the valuation allowance maintained against certain state credits, and non-deductible executive compensation. Net income for the first quarter of fiscal year 2026 was $91,000 compared to $42,000 in the prior year period. Diluted earnings per common share was one cent compared to five cents in the prior year first quarter. As of December 31st, 2025, our balance sheet remains strong with cash and cash equivalents of $24.9 million. We would also like to point out that the decrease in cash from September 30th, 2025 was primarily related to several financing deals that we closed in Q1 26. And we are to collect approximately 3.3 million from financing payments scheduled during the next two quarters. As we noted in the press release this morning, we will be paying a dividend of 3 cents per share on March 12 to shareholders record of February 26. With that, I will turn it over to the operator for your questions.

Operator

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Your first question for today is from Joseph Nerges with Seagram Investment.

Joseph Nerges | Analyst, Seagram Investment

Hello. Good morning, guys. How are you?

Operator

Good. Good morning, Joe.

Joseph Nerges | Analyst, Seagram Investment

How are you doing? Okay. A quick accounting question. We keep talking about service revenue. Do we have two categories for service revenue? When you talk service revenue, are we talking managed services or are we talking services beyond managed services? Is there two categories or just one category? for services revenue? You understand my question?

Gary Levine | Chief Financial Officer

Multiple, Jeff. Yeah. It's, yeah, multiple items, Jeff.

Joseph Nerges | Analyst, Seagram Investment

Okay.

Gary Levine | Chief Financial Officer

It's not just one.

Joseph Nerges | Analyst, Seagram Investment

All right. So then what are we talking about for managed services for the quarter? I think you said, did you say 5.3 million? Is that correct?

Gary Levine | Chief Financial Officer

Correct.

Joseph Nerges | Analyst, Seagram Investment

The managed services portion of our services revenue. for the first quarter?

Gary Levine | Chief Financial Officer

Well, that's the total service revenues inclusive of, you know, the TS division as well as the AZT.

Joseph Nerges | Analyst, Seagram Investment

Okay.

Gary Levine | Chief Financial Officer

We don't break it out, Joe.

Joseph Nerges | Analyst, Seagram Investment

Joe, we don't break it out. Okay. You're not breaking it out between TS and things. I'm just trying to understand how much revenue in managed services do we have?

Victor DeLobo | Chief Executive Officer

A lot. Yeah, it's a good portion of it. I don't have that number right in front, but it's the majority.

Joseph Nerges | Analyst, Seagram Investment

Okay, so the majority of the $5.3 million would be the managed services portion of it, okay? All right, let me get past the accounting here. Let's talk about the Acronis just for a second. I noted that from the Acronis website, they changed their, we're going to be rolled into Acronis CyberProtect. That's going to be their product, I understand. Is that correct?

Victor DeLobo | Chief Executive Officer

It'll be into not just a CyberProtect. It'll be on their front GUI. So even when they potentially want to do a backup, if the customer chooses, they can run our product to look at all the data and all the applications, making sure there's no issues before they back up the data.

Joseph Nerges | Analyst, Seagram Investment

Okay, so, you know, previously they had a product called Acronis Cyber Backup. Now they changed the name to Acronis Cyber Protect. That's, as I understand, what we'll be rolled into. And are we not selling a Kronos cyber backup? Haven't we sold that in our TS division? We have customers that are utilizing Kronos down there, haven't we?

Victor DeLobo | Chief Executive Officer

Yeah, correct.

Joseph Nerges | Analyst, Seagram Investment

So theoretically, we can increase our AZT sales force by incorporating our sales team in Florida who sell the Kronos backup service which would now include AZT. Do you understand my question?

Victor DeLobo | Chief Executive Officer

It's not really, it's a statement, yes.

Joseph Nerges | Analyst, Seagram Investment

We're expanding the capability of the backup service for the possibility of adding AZT to it. Correct. And since we have customers, I assume, because we've been representing them for a number of years in our TS division, we must have a number of customers out there just in our division that are utilizing the backup service solely. Okay, so in effect, our sales team in Florida can expand the backup service to include AZT for those customers that want to have that protection.

Victor DeLobo | Chief Executive Officer

Yeah, if we're doing backup for a customer, you have to understand not all customers we do backup for. There are a few that we do.

Joseph Nerges | Analyst, Seagram Investment

Well, okay. But whatever few we do can now utilize the ACT adding if they choose to spend the money, yes. Okay. I'll let somebody else jump in. I don't want to dominate the whole thing, but I'll come back and put another question after other people have a chance to ask questions.

Michael Poliviu | Host

Okay. Thanks, Joe. Thanks, Joe.

Operator

Your next question is from Mike Price, a shareholder.

Mike Price | Shareholder

Good morning. Thanks for taking my calls, my questions. With AZT being embedded in the Acronis offering, there should be some predictability. Can you give us an idea of how that translates into revenue? I mean, at some point it would be nice to have this quantified.

Victor DeLobo | Chief Executive Officer

Yeah. We haven't even fully integrated with building the API, so how that rolls out, Mike, if we ever get that out there that we have some outlook on that, I'll include it. But at this stage, it's way too early.

Mike Price | Shareholder

And how far out do you think that might be until you give us some idea of a dollar amount?

Victor DeLobo | Chief Executive Officer

I have no idea, Mike. I'm not going to guess at this stage. Right now I'm concentrating on getting the integration finished.

Mike Price | Shareholder

Okay. And also it's been five months because of the blackout period that you've been able to repurchase shares. Is that in the plans with, you know, $100 million market cap and the stock within hailing distance of the 12-month low?

Victor DeLobo | Chief Executive Officer

Yeah, it's always been part of that. Yeah, we've been, you know, unfortunately locked out for a while. It'll open up in the next 48 hours, and we'll do something this quarter. Yeah, we'll be doing something this quarter.

Mike Price | Shareholder

Okay, and a statement along with that, it would sure show a lot of confidence if the insiders, other than Joe Nurgis, you know, were buying shares also. Just a statement. Okay, thank you. Thanks, Mike.

Operator

Your next question for today is from Brett Davidson, a private investor.

Brett Davidson | Private Investor

Good morning, gentlemen. Good morning, Lou. Just got a few quick things. Gary, I think you were talking about the repayments on the financing, the $3 million. The interest, yeah. Yeah, are we still – so we're going to collect $3 million. That number on the balance sheet could conceivably drop, but are we still acting in that financing role? Is it going to drop on the balance sheet, or it's just cycling through to another customer or whatever?

Victor DeLobo | Chief Executive Officer

It could, Brett. It could, yeah. It just – every customer is a little different, but those are the ones that we've already paid out you know, paid for the product and now we'll be collecting. So sometimes we're taking three year deals for the customer and, you know, the payment structure for all deals are a little different.

Okay. Brett Davidson | Private Investor

So we're still in that business.

Victor DeLobo | Chief Executive Officer

Yeah. We're offering it to customers that are high quality customers and it keeps us sticky inside the organization. And it's a good use of our cash. Yeah, you got your claws on them.

Brett Davidson | Private Investor

So the permission on the second and third sites, I'm just interested in kind of when that occurred. Are we talking about just in the first quarter, or is that continued, or excuse me, in the prior quarter, or is that continuing to the current quarter, some of those second, third sites?

Victor DeLobo | Chief Executive Officer

The ones that have multi-site, there's two variations, right? The ones that we deal with corporate, and then if they have 50 locations like we did with one of our large pharmaceuticals, they bought it from the corporate level and we pushed it out to those 40 plus. In some cases, all the budgets are separated, so we have to go to, one of the ones I mentioned was that steel company, we have to go to all 20 some odd sites, and we already got the third site, you know, one came in last quarter, one came in this quarter. There's another one in the food industry that we got the second one. Another one in another industry came in actually yesterday for the third site. So yeah, they're, Unfortunately, it would be nice if we could just deal with corporate, take one purchase order and push it all out. In some cases, that's not the case. We have to go to every individual site. It gets easier after the first one because we don't have to do another POC. We just have to go get budget money from them. As I mentioned earlier in the script, that every customer's purchasing process is a little different. We have to abide on how things you know, how each one does that. And sometimes, unfortunately, they are very, very slow and things take way more time than I think it should, but we're at the mercy of the customer.

Brett Davidson | Private Investor

Well, from the description there, it sounds like this is becoming a more regular occurrence. This is starting to happen with some kind of frequency.

Victor DeLobo | Chief Executive Officer

Yeah, like last year at this time we had two customers, right? A year later, you know, I mentioned we have 40-something. So, you know, we are doing that where we see the product at one location. We try to get someone who can evangelize the difference between us and some of the competitors out there, why they should spend money with, you know, a small company like us and how we truly do protect the endpoint and lock it down. And if we can get someone who can evangelize internally, it makes it a lot easier for the second, third, and multiple locations that they have. So, yeah, it's getting easier, but it's not easy, right? Every customer is a little different, and getting to know the customers and how they do business is a lot of work. But, you know, we are getting references. Yeah. You know, we are getting references, and the references are helping, right? You know, we're working on a deal right now. They're like, who else do you do business with locally? And we mentioned, he's like, oh, I know that person. Let me call him. If they get thumbs up on ARIA AZT, you know, I don't even have to do the POC. So things like that are happening. You know, to me, it can always be faster, but things are happening in a positive direction.

Brett Davidson | Private Investor

Yeah, you know, that's exactly what I'm getting at. Yeah, I fully get it that, you know, it's this really tough slog, but eventually, so once, I mean, if you get to the point where, you know, multiple of these relationships start to pay dividends and, you know, one guy's talking to another guy and, I mean, do you get any feel yet of the kind of momentum where this starts to look exponential instead of linear? Um, or still too early, still a little too early, right?

Victor DeLobo | Chief Executive Officer

You know, we're gathering the data. It's getting a little easier to connect dots, but it's still, you know, like I said, it's only been truly a year, um, of really, really pushing this, this, this product and kind of figuring out the messaging and, uh, you know, every industry is a little different. So, you know, building those, you know, like I had mentioned on the script there that we're putting, you know, these one pages together that represent the industry to try to make it a little easier to understand how we can help them, you know, and why we're a little different than the competitors, where we fit in with those competitors, right? Sometimes we can go alongside of those competitors, you know, they can do the IT side of it while we do the OT side of it, right? And, you know, how we can join, you know, all the logs on the, you know, one interface, So those are the messages that we kind of put together over the last year to try to make it a little cleaner, clearer to the customer, everything to speed up the sales process.

Brett Davidson | Private Investor

So it sounds like the beginning signs are there, but it just hasn't fully mushroomed yet. But, well, I commend you for the hard work and moving this forward, and I'll try and be patient.

Victor DeLobo | Chief Executive Officer

Yeah. Yeah. We're moving as fast as. We can. I promise you that. You should know me. I'm not a patient person.

Brett Davidson | Private Investor

All right. Well, thanks for taking my questions. Thanks, Brett.

Operator

As a reminder, if you would like to ask a question, please press star 1. Your next question is a follow-up question from Joseph Nurgis.

Your line is live. Joseph Nerges | Analyst, Seagram Investment

Okay, I'm back on again. Okay, just a little clarification. You elaborated on the expansion of our marketing and managed services, and I'm trying to get the numbers. I heard them once, and I think we heard them through repeat again, where you said that we're adding some new customers in managed services. Did you say that you thought there would be monthly revenues going forward of $100,000? I'm trying to get the numbers that you gave.

Victor DeLobo | Chief Executive Officer

Joe, we had a really good – we closed some nice deals. So a little clarity. When you close an MSP deal, right, it takes various times to get them set up and actually start billing them. Over the last – we closed some – before the end of last year, we closed some nice deals. It took us a little time to get those up and running. And as of last quarter, we are starting to bill – net close to $100,000, a little less than $100,000 additional per month of net new revenue for the MSP.

That's net new revenue. Joseph Nerges | Analyst, Seagram Investment

That's extremely good. That's what I thought you said. And that's a total of all the customers you've added.

Victor DeLobo | Chief Executive Officer

Yeah, just the additional increase per month.

Joseph Nerges | Analyst, Seagram Investment

All right. Well, great. Thank you. That clarification, I thought that's what you said, but I just wanted to make sure that the numbers were added up to what I was thinking of. Thanks a lot. Thanks again, guys.

Victor DeLobo | Chief Executive Officer

Yeah, no problem, Joe.

Operator

We have reached the end of the question and answer session, and I will now turn the call over to Victor for closing remarks.

Victor DeLobo | Chief Executive Officer

Thank you, everyone, for joining us today. As I mentioned at the top of the Today's call, we made progress on all fronts during the first quarter and aggressively pursuing our opportunities for the remainder of fiscal 2026, both on the services side of the business as well as the AZT Protect. And we look forward to reporting on our progress with you in May. In the meantime, thank you to our shareholders for their support, to our team for the dedication and effort, and we wish everyone a good remainder of the day.

Goodbye for now. Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606090054-00'00'

NASDAQ:CSPI Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Matthew | Conference Operator: Good day, everyone, and welcome to the CSPI's fiscal fourth quarter and full year 2025 conference call. At this time, all participants are placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Michael Poliview. Sir, the floor is yours.

Michael Poliview | Host

Thank you, Matthew. And hello, everyone. And thank you for joining us to review CSPI's financial results for the fiscal 2025 fourth quarter and full year-end of September 30, 2025, as well as recent operating developments. Today, with me on the call is Victor DeLogo, 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 asked participants to limit themselves So 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 photo-looking statements as those identified in Federal Securities Law. The words may, you will expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions or intendance to identify photo-looking statements. Faultless statements should not be met as a guarantee of performance or results. The company cautions you that these statements reflect the current expectations about the company's 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 statement 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 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. Follow-up statements are based on the information available at the time those statements are made and managed with good faithfully as of the time with respect to future events. All follow-up statements are qualified in entirety by this cautionary statement and CSPI undertakes no obligation to publicly revise or update any forward statements, whether as a result of new information, future events, or otherwise after the date they're on. With that, I'll turn the call over to Victor DeLobo, Chief Executive Officer. Victor, please go ahead.

Victor DeLobo | Chief Executive Officer

Thanks, Michael, and good morning, everyone. We had a strong finish to the fiscal year. Overall fourth quarter revenue increased 11%. while our overall gross margins increased by more than 800 basis points to 37%. We significantly increased our profitability during the fiscal fourth quarter from the same prior fiscal quarter, while continuing to invest in building the deal pipeline and new customers of our highly differentiated and award-winning AZT Protect cybersecurity offering. For the full fiscal year, maintained our strong balance sheet and positioned ourselves for increased momentum and growth in fiscal 2026. Once again, our technology solution business drove our fourth quarter and four-year growth. We expanded relationships with existing customers while gaining new customers due in large part by the exceptional customer retention track record we have earned in a wide variety of industries, including finance, manufacturing, oil and gas, healthcare, aerospace, education, utilities, telecommunication, and maritime. Technology solution increases the efficiency and effectiveness of our customers' IT investment in networking, wireless, mobility, unified communication and collaboration, data center, and advanced technology security, and continues to be a major driver of our service business growth. During the fourth quarter, our service revenue grew 63% over the same prior year quarter and represented approximately 44% of our total revenue. During the year-ago fourth quarter, service revenue represented approximately 30% of total revenue. For the full year 2025, service revenue represented 36% of total revenue as compared to 33% a year ago. Managed cloud and MSP services are an increasingly important part of our offering. And during the fiscal 2025, this business grew a healthy double-digit rate. One of our key objectives in fiscal 2026 is to build on that growth rate. To achieve this, we are allocating more resources to these opportunities, including adding more sales reps. Our MSP slash cloud service strategy has been especially positively effective in the maritime industry, where we are expanding installations during the fiscal 2025 and then gain contracts to service these installations, the result of which will begin in realized in fiscal 2026. In addition, we entered our fiscal 2026 with backlog for cruise ships, installs and upgrades, which we hope to convert revenue over the next 12 months. Growing our service business benefits our shareholders in two important ways. First, the revenue tends to be very sticky given our strong service track record with customers and our unique position in the marketplace. Second, our service revenue earns higher gross margins than our product revenue. We are quite excited about the results generated from our service segment during the fiscal 2025 and are even more excited about our potential entering the fiscal 2026. Turning to the HP segment, we continue to gain traction with our strategic partners and distributors and their customers for AZT Protect cybersecurity offerings. Over the course of the past fiscal year, our go-to-market strategy led to dozens of new AZT customer installations, as well as a continuously expanded pipeline for our new customers. Working through our Gold Star resellers, including the Rockwell Automation's largest North American distributors, our strategy is to successfully implement our solution at an individual site with the customer's operations, then pursue other installation opportunities within the organization. We have recently executed this sales approach with several customers as we speak and are actively working on purchase orders with our partners to deploy ACQ Protect at additional sites. To date, we have customers in the steel, energy, manufacturing, water utilities, pharmaceutical, food, telecommunication, and other industries, all with multiple installation potential. many of these potentials to become a six- or seven-figure dollar relation for our company. We have deployed case studies of the results achieved by AZT Protect within most of these industries, and Rockwell distribution channels are aggressively taking these results to market. We believe this approach is working as we exit the year with significant increase in the number of AZT Protect deployment deals in the works. In addition, in the fall of 2024, we participated in the Rockwell Automation Fair in Anaheim, which was the first step into the Rockwell Automation Channel. We participated again this year at the Rockwell Fair in Chicago that was held a few weeks ago. And it isn't an exaggeration to say the booth was busy throughout the entire fair. Operational technology customers continue to lack the effective cybersecurity protection at the level AZT Protect provides. We continue to believe we have a strong competitive advantage in this space and also believe that the market now sees us as a substantial resource. Our objective is to convert this building momentum into sizable AZT Protect sales in fiscal 2026. We are quite excited about the direction in the fiscal year 2026 prospects for our business as we expand our focus to protecting industrial IoT devices. The devices in this space have traditionally been difficult to protect due to the types of processors used and limited resources available that typically don't support conventional IT-based endpoint protection solutions. ADT Protect has had an initial success in being selected and deployed in such environments. We are optimistic that This opens a new market for the product. Many AZT Protect installations require an approach to simplify mass deployments. That means our team has had to enhance our software to allow for easy integration into the industrial IoT products supplied by other vendors. Today, we have overcome these integration challenges without exception. There is still more work to be done to streamline the approach, however, This ability to integrate the deployment of ACT Protect into the industrial IoT company's existing systems is a major driver behind our growing pipeline into this large, unserved industrial edge compute market. In summary, our service business exited the year on an extremely strong note, and our product business is gaining momentum. We believe we are on a trajectory to generate consistent profitability improvements for the fiscal full year 2026 as we built the infrastructure and made the investment required to support significant expansion of our business. As a result, we believe that we are in a position to significantly leverage revenue growth going forward. With that, I'm going to turn the call over to Gary to provide you with some more details about our recent financial performance. Gary?

Gary Levine | Chief Financial Officer

Thanks, Victor. For the fiscal fourth quarter ended September 30th, 2025, we generated $14.5 million in revenue as compared to $13 million for the year-ago fourth quarter. The product's revenue decreased $1.1 million Service revenues increased 2.5, or 63%, compared to the year-ago period. Gross profit for the fourth quarter was $5.3 million, compared to $3.7 million for the fourth quarter of fiscal 2024. The exceptional service revenue growth during the quarter drove the gross profit margin increase. Gross margin for the fourth quarter was 37%, which was more than 800 basis points higher than the same prior year quarter. The strong increase in service revenue drove the increased margin. On the expense side of the income statement, comparing the fourth quarter of fiscal 2025 to the same prior year quarter, research and development costs increased 13%, as we brought to market new features for AZT Protect and developed software solutions to engage and integrate our solutions into customers' operations. Our SG&A expenses for the quarter were essentially flat as compared to last year. Our operating loss for the quarter was $0.5 million compared to $2 million operating loss for the same period of the prior year quarter. We reported a net loss of $191,000, or 2 cents per diluted share of common, for the fourth quarter, compared to a net income of $1.7 million, or 18 cents per diluted share, for the year-ago period. As of September 30, 2025, our balance sheet remains strong with cash and cash equivalents of $27.4 million. Our cash position is down about 10% from our cash position a year ago. However, we continue to provide revenue financing to qualified customers, and you'll note that our financing receivables level doubled over the course of the past year. In addition, we invested in the growth strategy of AZT Protect. We also used cash to pay the 3 cent share dividend and we purchased 19,500 shares of our common stock during the fourth quarter for a total cost of $234,000. As we noted in the press release this morning, we will be paying a $0.03 a share dividend on July 15, 2026 to shareholders of record on December 26, 2025. Turning to the full year, and it's September 30th, we grew the revenue by 6% and grew gross profit by 18.5 million or 32% of sales compared to $18.9 million dollars or 34% of sales. We reported a net loss of $91,000 or a penny per share of common compared with a net loss of $326,000 or 4 cents per demoted share of common for the prior year. I will turn the call over to the operator for your questions.

Matthew | Conference Operator

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions.

Operator | Conference Operator

Thank you. Your first question is coming from Joseph Nergis from Segrin Investments.

Matthew | Conference Operator

Your line is live.

Joseph Nergis | Analyst, Segrin Investments

Morning, guys. How are you today?

Matthew | Conference Operator

Morning, Joe.

Joseph Nergis | Analyst, Segrin Investments

Morning, Joe. My quick math here, you mentioned that the service revenue in the fourth quarter was like 44% of total sales. If my math is correct, you're close to $6.4 million in service revenue in the quarter alone. Am I correct? Yes. Am I wrong on that, Matt?

Gary Levine | Chief Financial Officer

Yeah, I mean, overall as a company, yes, that's approximately.

Joseph Nergis | Analyst, Segrin Investments

Yeah, you said, I don't know, 44% of $14.5 million. That's where I'm coming up with the number.

Matthew | Conference Operator

Right.

Joseph Nergis | Analyst, Segrin Investments

So that's a terrific number. I mean, you know, being at the annual meeting several years ago, and Victor mentioned that he gets calls and, you know, all the time trying to purchase our managed services operation. So, you know, if we continue with that, we're talking about a plus $20 million a year service revenue just in managed services alone in the TS division. So that's really terrific. But let me get on to a question. I really think that the last press release you guys issued on the IIoT issue, expansion of AZT Protect. It's really a, you know, you use the term, Victor used the term game changer when he first introduced AZT Protect, and I really believe that this expansion is a game changer. Now, as an example, I guess this all started basically with our, I might correct, the cell tower customer in South Africa, where we deployed that, and then we began deploying it to other suppliers in that environment. And then we kept talking about the black box. So as an example, if you have a cell tower customer with, let's say, 1,000 towers, what is our potential for the endpoint? How many endpoints we possibly sign up if it's fully deployed and accepted by customers down the line? Let's say a size of 1,000 towers.

Victor DeLobo | Chief Executive Officer

Well, if you look at the two press releases that we've done before, right, we started off with the black box that's inside the cell towers and then we opened it up to the cameras that are on the cell towers also. So those are the two press releases that I had released probably six months ago or so. And it's not a thousand towers, it's tens of thousands of towers that we're talking about. You know, I think the first round was like 15,000 and then it'll continue to to grow as they move out. And I had mentioned on the last call that it took some time to get the product to be able to integrate into those systems and with significant testing. And that has already gone through the testing in approval process with the customer. And as we said on the other call and in press releases, we're trying to do a seed unit type of environment and then we did that and we already get the second order um for the cameras for additional uh cell towers and what you know as they continue to grow and expand you know there should be further purchase orders throughout the year next year of what magnitude and what exactly that looks like too early early to tell Joseph Nergis | Analyst, Segrin Investments: Well, but obviously, you know, we're just talking about one cell tower customer here. How many other customers could we possibly integrate? Have we signed, have we currently signed any OEM agreements in the IOT environment? I mean, the guy that's the supplier of the black boxes, he would be, I assume, a potential OEM customer. supplier for the IIoT market. Have we signed contracts with these people as of yet for OEM deployment?

Gary Levine | Chief Financial Officer

Not yet.

Joseph Nergis | Analyst, Segrin Investments

Not yet? So that would be the next stage. And I'm assuming that that's a priority for our sales team going forward, the signing of as many of these OEM suppliers as possible. Of course. Am I correct? Am I wrong in that? You would be focusing on... No, you're correct. Okay. All right. Well, you know, I think the numbers are great. I realize I know what the problem is, is simply, you know, we need the time to get rollouts, full rollouts in some of our customers. I'm assuming our only full rollout of AZT protectors in our pharmaceutical company. Most of the other customers we have... have deployed it in individual plants or equipment, but not fully rolled them out. So when you say you're expecting the full rollout over the next year to two years, I assume that's what you're talking about.

Victor DeLobo | Chief Executive Officer

Yeah. In some cases, we're talking to different companies about doing like an enterprise agreement where centralized purchasing would purchase it and then roll it out to all the locations. And in some cases, I think I mentioned on the last call, we have to talk plant by plant. So since, you know, we had one initial plant that we sold to over the quarter, we sold it to a second one or a third one. So it just takes time based on just having to talk to 50 or 80 or 120 plants, you know, individually. So that takes time getting to, you know, it's easier than getting the first one in, but it's still a sales process. And then in some cases, we're talking to companies at the purchasing level where they want to, you know, cut one potential purchase order for all locations, which, of course, makes our life a lot easier and speeds up the timeframe on when we can get the purchase order over, you know, over the line.

Joseph Nergis | Analyst, Segrin Investments

One more follow-up on that. I'm assuming that all of these potential customers already have contracts signed is signed in their OT environment, a cybersecurity contract. So am I correct in some of these customers might be waiting for that contract to expire before they enter a new contract with a new supplier like us?

Unknown | Unknown Participant

In some cases, yes. In some cases, yes.

Victor DeLobo | Chief Executive Officer

Or sometimes the competition may not be supporting older versions of software.

Brett Davidson | Participant

Yes.

Victor DeLobo | Chief Executive Officer

So... One of the energy companies we sold to, that's what happened. They stopped supplying the product that they're currently using, which I don't want to mention. They stopped supporting older versions of Microsoft, so we took over those couple thousand devices because they're not willing at this stage to throw them out completely, but at least we're in there and we're picking at it slowly.

Joseph Nergis | Analyst, Segrin Investments

All right. Well, thanks a lot. I appreciate the answers, and good luck going forward. It sounds like 26 could be a really good year for us. Thanks, guys.

Operator | Conference Operator

Did you enjoy the show, Joe?

Joseph Nergis | Analyst, Segrin Investments

Yes, except for one thing. I came back with a cold, and I still haven't. I'm still trying to get rid of the cold. But the show was really good. A lot of customers came by and said, They seem pretty well engaged. Now, closing these guys is not a story, but the numbers are there from what I saw to hopefully get some pretty serious contracts in the not-too-distant future. So, yes, I appreciate you inviting me to the show. Anyway, thank you.

Matthew | Conference Operator

Thank you. Your next question is coming from Will LaBerve from Visionary Wealth Advisors.

Your line is live. Will LaBerve | Advisor, Visionary Wealth Advisors

Hi, just had a couple questions. I guess I was at that Rockwell show as well for, I guess, a day on a morning. I just didn't get to see the whole thing, but I definitely saw quite a bit of traffic and the time was there. If I kind of remember right, most of the customers that you guys have gotten over the last year, the connections were made at that Rockwell show a year ago. Is that true?

Victor DeLobo | Chief Executive Officer

That is correct. Yeah, most of the orders that we got all came from the Rockwell, so that's been our biggest way of getting leads.

Will LaBerve | Advisor, Visionary Wealth Advisors

Okay. And then can you kind of quantify the number of leads you got last year versus this year? And then I guess along with that, maybe the quality of leads, I assume it's – Probably better this time because I noticed a number of your distributors bringing their customers to the booth. So, you know, that's a lot better than just some random person walking by your booth and talking to you.

Victor DeLobo | Chief Executive Officer

Right. Yeah, I'm glad you noticed that, that, you know, the distributors, the CEDs, the Sona Paws, the Rexels, they, this year, being comfortable with the product, having closed some opportunities, they were way more comfortable. You know, it was an introduction last year at the show, where this year, you know, we have a relationship. So they brought a lot of their customers. There's been a lot of follow-up already. There's been a lot of appointments already set up, our initial calls. Unfortunately, you know, the timing of the show is like you got Thanksgiving right off of, you know, the following week. So everybody kind of takes that week off. So it's been the last two weeks where we, you know, were able to get in touch with a lot of the individuals and set up initial meetings um and their follow-up meetings right after christmas you know just because you know we're back to back on these holidays as as you see fit but yeah we probably got a 50 increase in leads this year than over last year um i have we haven't gone through all of them yet uh at this stage but they seem to we definitely have a lot more initial meetings than we did quickly based on, you know, the relationships we do have with the rec cells of the world and CEDs and so on and so forth. They were able to set up meetings immediately for us. So, yeah, we're very optimistic that, you know, we closed a lot of deals last year because of this show. You know, my goal is to close, you know, double if we could, right? We have about 50% more of the leads and I think we have a better relationship With them, we have a better reputation. They kind of know us now. We have a lot of installs. So, yeah, I'm looking forward to 2026.

Okay. Will LaBerve | Advisor, Visionary Wealth Advisors

Yeah, that was more of these than I thought, so that's good.

Victor DeLobo | Chief Executive Officer

Yeah, you were there. Our booth was always full, right? You never saw no one, you know. We had two demos going almost all day for the whole eight hours that the show was there.

Will LaBerve | Advisor, Visionary Wealth Advisors

No, it was good. And then I know you guys have probably one of the smaller booths, and I'm sure that costs you quite a bit. But, you know, I think it's probably money well spent generating all those leads.

Operator | Conference Operator

Yeah, definitely, definitely. Okay. That's all I have right now.

Matthew | Conference Operator

Thanks.

Unknown | Unknown Participant

Thanks. Thanks, Will.

Have a good one. Matthew | Conference Operator

Thank you. Your next question is coming from Mike Price.

Your line is live. Mike Price | Analyst

Thank you for taking my questions. You didn't mention Acronis, and I was wondering if ACT is being integrated into Acronis software, is there not predictability as far as revenue is concerned? And if that's the case, can you give us an idea of what that might be?

Victor DeLobo | Chief Executive Officer

Well, it is being integrated, but what the projections are on that, I think it's too early to tell. We're working diligently to get that done over the next few months. But as soon as I have some information I can share, I definitely will.

Mike Price | Analyst

So how soon do you think we start seeing some revenue? Is this something a couple months, late 2026, some kind of timeframe? It seems like it should be a pretty significant number, is it not?

Operator | Conference Operator

I think it's too early.

Victor DeLobo | Chief Executive Officer

Our hopes for both parties is that it's going to be significant for both of us. We fill a gap that they have, so that's kind of how we put this together. But what revenue looks like, I think it's just way too early for me to even guess at this point what that is. But our hopes are that it's going to be significant for both parties. I don't think Cronus, being as big as they are, would team up with us if they were and waste their time if they didn't think it was worth their time and effort.

Mike Price | Analyst

Okay. And last conference call, I asked you about the relationship with some of the resellers, specifically UFT, where with the original press release, they have 16,000 customers in the water and wastewater area. And you said that there are things in the works that would be discussed later. Do you have any more light on that?

Victor DeLobo | Chief Executive Officer

I do. So the powers to be at UFT wanted to get three sites implemented and then do case studies on those three. So that's what's happened over the last couple months. Their customers move slower than they would like, but we are on weekly calls with updates. And then in the new year, you know, it's a full steam ahead to, you know, a lot of their customers doing major marketing events jointly with their 16,000 customers doing reach out. But they needed case studies. They needed to change legal agreements. There was a lot that they had to do on their side to get this ready. And, you know, I'm a little bit at their mercy, but the relationship is strong. We closed three opportunities over the last quarter. That was part of the case studies. that they're writing up now.

Mike Price | Analyst

Okay. And one last quick question. Last quarter, you bought some shares, but are you not subject to the same, the company's subject to the same rules as insiders as far as buying shares? So now that you're reporting earnings so late within two weeks of the end of the first quarter, you can't buy shares until next earnings. Is that the case?

Gary Levine | Chief Financial Officer

Yeah, pretty much.

Yes. Mike Price | Analyst

So basically the blackout, for share repurchase was from mid-September till mid-February when you next report. Is that correct?

Victor DeLobo | Chief Executive Officer

Well, it was to the 15th of the month of December. Right. And, you know, we're here now just because of when, you know, the year-end reporting.

Mike Price | Analyst

Okay, so you last had a window within two weeks of the end of the fiscal year, mid-September. And because the late reporting is within two weeks of the end of the first quarter, you cannot buy shares again until your report earnings probably mid-February. Correct. Is that correct?

Joseph Nergis | Analyst, Segrin Investments

Correct.

Mike Price | Analyst

Okay. All right. That's correct. Okay. Yeah. All right. Thank you. Appreciate it. Yep. Thank you.

Have a good one. Matthew | Conference Operator

Thank you. And once again, everyone, if you have any questions or comments, please press star then one on your phone. Your next question is coming from Brett Davidson. Your line is live. Good morning, gentlemen.

Brett Davidson | Participant

Happy holidays. Happy holidays. Same to you. Yeah, thank you. I want to turn back to the fog surrounding the Acronis or Acronis or however the name is pronounced. So, you know, I understand that a lot of this is endpoint protected, the revenue generation. How does that work with the Acronis device? Who are you going to be recognizing the revenue from? Is that coming from Acronis or is that coming from their end user?

Victor DeLobo | Chief Executive Officer

It'll be coming from Acronis. And it's a little different with what we're doing with them. We're concentrating on scanning the backups before Acronis does the backups to make sure there's no, you know, all the content is secured and there's nothing inside that. And then they would trigger the backup. And that's where the advantages are scanning of, you know, all the information that's on before the backup occurs, we would scan it and certify that there's nothing wrong with it. And then they would, you know, the backup can, you know, go. So if they ever had to do a recovery, it would be, you know, a secured recovery. So is it going to be our customer at the end?

Brett Davidson | Participant

Is this going to go on every one of those devices that they're producing, or is it going to be based on, you know, what their customer wants, or is this automatically going to be thrown on their devices?

Victor DeLobo | Chief Executive Officer

No, they would still have to sell it to their customer.

Brett Davidson | Participant

Got it.

Victor DeLobo | Chief Executive Officer

That's the way it is right now. If it gets to the level that, you know, you just said that would be, you know, we're not there yet. Let's put it that way. They've got to go somewhere to their – industrial customers, which I can't mention, and they have to show it as an added value.

Brett Davidson | Participant

And it's going to work similar. This is going to be like a subscription type thing that will renew at some point. Perfect. All right. And the only other thing that I had questions on was regarding, you know, the revenue next year. Is this something where we could reasonably expect incremental increases in revenue throughout the year or it's just so all over the place that, you know, you just don't have that kind of insight into how this is going to play out?

Operator | Conference Operator

The latter.

The latter. Brett Davidson | Participant

Okay. Fair enough. Okay. Well, that's all I got.

Thanks so much. Okay. Thanks. Matthew | Conference Operator

Thank you. That concludes our Q&A session. I'll now hand the conference back to Victor DeLobo for closing remarks.

Please go ahead. Victor DeLobo | Chief Executive Officer

Thank you, everyone, for joining us today. We hope you've come away today's call with a sense of excitement from our fourth quarter results and our opportunity for fiscal 2026. We are working extremely hard to capitalize on the opportunities we had in the service side of our business, as well as the ADT Protect, and we look forward to reporting on our progress with you in February of next year. In the meantime, thank you to our shareholders for their support, to our team for their dedication and effort, and we wish everyone a happy holidays.

Goodbye for now. Matthew | Conference Operator

Thank you. Everyone has concluded this event. You may disconnect at this time and have a wonderful day. Thank you for your participation. jsPDF 3.0.3 D:20260606090056-00'00'

NASDAQ:CSPI Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Tom | Operator: Good day, ladies and gentlemen, and welcome to CSPI's fiscal 2025 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.

Michael Polivio | Host

Thank you, Tom. Hello, everyone. Thank you for joining us to review CSPI's financial results for the fiscal 2025 Third Quarter and the June 30, 2025, as well as recent operating developments. Today, with me on the call is Victor DeLoveau, 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 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 photo-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 photo-looking statements. Photo-looking statements should not be meant as a guarantee of future performance or results. The company cautioned you that these statements reflect the current implications 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 factors section of the annual report, in Form 10K, in the quarterly report on Form 10Q, File, Excursion, and Exchange Commission. Photo-looking statements are based on the information available at the time those statements are made and management's good faith believes as of the time with respect to future events. All photo-looking statements are qualified in their entirety by this cautionary statement and a CSPI undertake no obligation to publicly revise or update any photo-looking statements whether as a result of new information. Future events are otherwise active to date, they're up. With that, I'll turn the call over to Victor DiLobbo, Chief Executive Officer. Victor, please go ahead.

Victor DeLoveau | Chief Executive Officer

Thanks, Michael, and good morning, everyone. Our fiscal third quarter revenue was $15.4 million, 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. A technology solution segment is currently driving our revenue growth as in the high performance product 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. 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 it, a hugely successful tracker record with their vessels. T.S. has experienced strong momentum in the cloud initiatives driven by successful execution 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. By leveraging its deep expertise and strong customer relationship, T.S. has been able to rapidly expand its cloud portfolio enabling organizations to accelerate digital transformation and achieve greater operational agility. The breadth and diversity of these active projects underscore T.S.'s ability to meet complex technical demands while positioning itself as a trusted partner in the evolving cloud market. Overall the T.S. 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 resell, we deployed at new customers in steel, concrete and lumber industries. In most cases the customers deploying AZT Protect at an individual site and through successful implementation of our solution we pursue expansion within the organization, creating a potential for five to six 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 US largest steel producer mill site. The customer loved our ability to lock down the environment and already have seen success in stopping an unintentional update that could have taken down the mills 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 operation. 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. This approach is broadening ideal pipeline for AZT which continues to offer operational technology marketplace a unique effective cybersecurity industrial control solution. This is the same process in which we secure the multi-million dollar opportunity within the global pharmaceutical company in fiscal 2024 which will continue to support AZT Protect for six 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 which does tens of billions of revenue in the US each year. We talked to each of their top executives in July and the feedback was overwhelmingly positive. Starting, 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, industrial leader in supply industrial equipment throughout the United States. Rexel provides a variety of products to industrial customers across the US and is a premier Rockwell automation distributor. Here is the feedback quoted. 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 ARIA AZT for expanding revenue opportunities within their large customer base. CED and Sonopi USA echoed similar statements saying they are both excited about the opportunity to grow business in FY26. Now that they have had initial success with selling the product, based on their expert opinion they estimate we are somewhere near the end of early adoption cycle and moving towards revenue acceleration. 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 tower at one of the largest cell towers in South Africa. This came from the South Africa distributor Oryx. 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 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. Specifically involved our team integrated our solver to be used within the system in 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. Oryx is extremely bullish on AZT protect in its unique value proposition for large growing industrial IoT market. Looking at the feedback from the three largest rock well resellers in the US 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 million in cash and cash equivalent while continuing to invest in our AZT product line. Additionally, we repurchased 19,000 common shares on the open market during the quarter and the board of directors authorized another three cents 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 2025. CSPI was added to the Russell 3000 index effectively June 30th, 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 in nine months financial performance.

Gary. Gary Levine | Chief Financial Officer

Thanks, Victor. For the third quarter ended June 30th, 2025, we reported revenue of $15.4 million compared to $13.1 million for the prior year. Product revenue grew 29% over last year's third quarter while service revenue of $5.3 million was slightly higher than the third quarter of fiscal 2024. Gross profit for the three months ended June 30th, 2025 was $4.5 million or 29% of sales compared to gross profit of $4.6 million or 35% of sales for the quarter ended June 30th, 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. The SG&A expenses for the quarter were up over the prior year by $0.2 million 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 2019 of $296,000 in the quarter. For the nine months, our revenue of $44.3 million was $2.1 million over the $42.2 million in revenue generated during the first nine months of fiscal 2024. The nine month income tax benefit was $1.5 million allowing us to record a net profit of $0.1 million or one cent per diluted share of common. The company continues to maintain a robust balance sheet as of June 30th, 2025. We had cash and cash equivalents of over $26 million. 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 three cent cash dividend for shareholders of record on August 29th, 2025 payable on September 15th, 2025. With that, I will turn it over to the operator for your questions.

Tom | 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 1 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 1 on your telephone at this time if you wish to join the queue to ask a question. 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. Brett Davidson | Analyst

Good morning.

Good Victor DeLoveau | Chief Executive Officer

morning, Brett Davidson | Analyst: Brett. Pretty exciting release this morning. Awful lot to digest. Gary, you had just mentioned something about consulting expense. Can you guys expand on exactly what that is?

Victor DeLoveau | Chief Executive Officer

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

Brett Davidson | Analyst

Is that going to be a recurring thing or is that just a one time deal?

It Victor DeLoveau | Chief Executive Officer

will probably be for another quarter.

Brett Davidson | Analyst

Got it. You announced that there was some sort of lumber mill concrete facilities. Can you disclose just generally where the lumber mill is located? Is this a Pacific Northwest thing?

Victor DeLoveau | Chief Executive Officer

Yes.

Brett Davidson | Analyst

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

Victor DeLoveau | Chief Executive Officer

It's just basically doing the same thing, protecting the facilities in the machinery that's being worked on the IoT side. Some of these concretes are like 23 sites for one. We were able to get into one and then evangelize to try to get into all 23 sites. Some of these sites have 10 endpoints and some of them have hundreds of endpoints. That's kind of where I gave you hopefully way more information to let you know what our approach to the market is now. Instead of trying to do an 18-month deal that might take 18 months for a million dollars, try to get it seeded and see if we can move things along a little quicker.

Brett Davidson | Analyst

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?

So Victor DeLoveau | Chief Executive Officer

the concrete plants, these customers are coming from the resellers. When we do a local event, 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 allow us to come in, do a POC, POV and then that's where it goes. We're not dictating the customers, the resellers are dictating who they're bringing to the table. Now, once we have success with that industry, of course we're going to go out and try to market to that industry because we already have a credible reference.

Brett Davidson | Analyst

Well, does that backfeed through the resellers' channels then where they start going back to concrete plants, who are customers and saying, hey, these other folks did this, you might want to look at it?

Victor DeLoveau | Chief Executive Officer

We would hope so. 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, we can do it at the 75 locations instead of just doing it at one location.

Brett Davidson | Analyst

Well, thanks a lot for the added color. The release was great. Glad to hear that the current quarter is rocking. So all sounds good to me. Thanks again, guys.

Tom | Operator

I have a good one.

Brett Davidson | Analyst

Talk to you soon.

Tom | Operator

Thank you. Your next question is coming from Joseph Nerges. Joseph, your line is live.

Please go ahead. Joseph Nerges | Analyst

Good morning, guys. How are you today? Good morning, Joe. One quick question. We released this product in July of 23. I talked about AZG Protect. And now we're 25 months into it. We put quite a bit of R&D. I'm assuming a fair amount of that R&D is directed at AZG. Can you maybe elaborate where we are with that software today? What have we added? What features have we added that might make it a more compelling product today than it was in 23?

Victor DeLoveau | Chief Executive Officer

OK. Well, the first release was XP the Server 2022. And it had one countermeasure to stop ransomware malware. Today's version, it's Windows and Linux. XP, there are 2025 releases. And it's one universal agent to both Microsoft and Linux. 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 code-based attacks, including nation-state. It also has the USB lockdown. It also has host-based micro-segmentation to remove threats of lateral movements. It also integrates into ITSIMs. So that was there. And there's probably another 30 plus little additions that customers wanted. There's been a lot of changes from version one to this version. So that's where a lot of the R&D is. And a lot of this came from what customers' needs were.

Joseph Nerges | Analyst

So we feel we're in a pretty Victor DeLoveau | Chief Executive Officer: good position right now Joseph Nerges | Analyst: with what we have. I'm assuming that there's not too much that we can't do. You kind of mentioned in the cell tower application that that's something quite different, right? A little bit 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 kind of worked. Are we tweaking our software at all to work with that environment? Are we doing any R&D to make that work?

Victor DeLoveau | Chief Executive Officer

Yeah, we're actually doing, yeah, we have to make some changes. Because what we're doing is, I don't want to give too much information about what, we're going to be loading it at the facilities when the box is being burnt in 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 theirs. So it's all Linux based on Linux, different versions of Linux. So yeah, there's been some work, and 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 overwhelming for our engineers, let's just put it that way.

Joseph Nerges | Analyst

You kind of alluded in your presentation that what we're doing might be something that we can utilize in other areas, other customers, that maybe our competition can't. Am I correct? Is that what you kind of alluded to? Yeah, Victor DeLoveau | Chief Executive Officer: absolutely. Yeah, in that Linux space that we're at, 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, the people we're working with, Oryx is very excited with the way we go to market and the way we're able to work with their end user customers. You're talking about putting this out to tens of thousands of cell towers over the next 12 to 18 months.

Joseph Nerges | Analyst

And I'll just one more follow up. There's a third party here, there's obviously the cell tower, there's the visual security, but again we go back to the black box. Yeah, there's a Victor DeLoveau | Chief Executive Officer: third party that makes that box.

Joseph Nerges | Analyst

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, Victor DeLoveau | Chief Executive Officer: yes.

Joseph Nerges | Analyst

Is there a possibility, is there a possibility of working with them?

Victor DeLoveau | Chief Executive Officer

Correct.

Joseph Nerges | Analyst

Yes, all right. Thanks a lot. I'll go back and listen to what other people ask. Thank you, guys.

Tom | Operator

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

Please go ahead. Mike Price | Analyst

Good morning. Thanks for taking my questions. You mentioned the early success for Oryx and 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.

Victor DeLoveau | Chief Executive Officer

Yeah, we could talk about that too. We've made some progress with them. 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 there was a bunch of legal stuff that had to get situated. So we're kind of pushed through that and we're definitely making progress with them and we look forward to some real success in 2026 in our current year.

Mike Price | Analyst

You once identified the OT market as being potentially $50 billion and all along I thought that when this catches on, there's going to be exponential growth. Do you have any projections going out 12, 24, 36 months as far as AZT revenues? Here we plot along, it's an 8% increase in revenues for CSPI for the quarter, but you're talking about $15 million and in the whole space it's a negligible amount. Do you have any projections that you can give us with what you're thinking longer term? Not that I'm willing to Victor DeLoveau | Chief Executive Officer: share, no. We have them internally. Okay. All right, Mike Price | Analyst: thank Victor DeLoveau | Chief Executive Officer: you.

Tom | Operator

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

Victor DeLoveau | Chief Executive Officer

Thank you. I want to thank our shareholders for their continued interest and support. We have a 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 Seltower Company. We're fortunate to have a TS business that generates the profit to fund the area business and we look forward to updating you on our progress during the fiscal fourth quarter in four-year call in November. Until then, stay safe.

Tom | 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. jsPDF 3.0.3 D:20260606090057-00'00'