CSP (CSPI) 12 Feb 212021 Q1 Earnings call transcript

Good day, everyone, and welcome to the CSPI First Quarter 2021 Conference Call. [Operator Instructions] Please note that this call is being recorded. And now it is my pleasure to turn the conference over to Michael Polyviou with EVC Group. Please go ahead, sir.

Thank you, Pasila. you ended us December thank fiscal review and quarter first XX, everyone, for to joining CSPi's Hello, XXXX. Financial Gary With is me CSPi's and Victor today Chief Levine, Dellovo, CSPi's on Chief Executive the Officer. call Officer; After Victor remarks, then the open their for we questions. will call Gary and conclude opening regarding laws. is facts made forward-looking may Statements call statements CSP identified that business as management Inc.'s company's by term in be securities federal are today's the on the not historical project, anticipate, to plan, estimate words may, believe, The similar intended expect, as continue are as identify intend, well will, and statements. expressions forward-looking

are should a beyond expectations subject of the and which and limited the number influence that of Commission. report to, upon not the or quarterly that performance in be are statements or the statements and other Forward-looking cautions the the may accuracy statements to a influences, and these not performance read the are are XX-Q about Form guarantee may Form the of you with and risks company projections and filed risks the on section and uncertainties XX-K based. results which but The as annual company's of uncertainties, company's future Securities Factors of affect current on the that discussed Factors many reflect company's control future results. include, Risk the statements report segment Exchange events

are the time new at respect qualified information statements by go forward-looking after time over update to faith turn made Dellovo, please the revise statements publicly statements that, events. Executive result as to available as thereof. Chief ahead. Victor or otherwise, management's the the obligation no and cautionary believe events future Victor, a or statement, entirety I'll statements, With Officer. any call information, whether date future undertakes Inc. their All of to are with on based CSP this the Forward-looking good and in those the forward-looking of are

Thanks, Michael, and good morning, everyone.

performance climate. quarter navigating our challenging first to continued demonstrate success the business Our

DNA develop recognition ensure compete The larger approach purposeful we to that primary order, services and to Specifically our positioned improved key strategies. objective margins, gross of pandemic, to and valued we into Despite top this is culture well long-term profitability. being deliver year migrating I company and the will cybersecurity, remains managed a offerings. and of also transforming higher-margin I to reflects CSPi entire our the can nimble and operating execute focused exciting pandemic objective much with emerge much new scratch companies. our the is company. into a delivering in stronger of to to that awards, is a products so much grow the nearly allow line CSPi from wireless company why believe service level a allowed the to needed our of develop industry remain the complement achieving offerings and on our with company, us and accolades inherent distinct from disproportionate a nimbleness advantage offerings team believe full a us is a

also but new the the for managed the nearly full Total to margin was percentage continued add and our prior of interest in I we million, level fifth improvement, and quarter to pandemic. to the mix quarter allowed us QX Our projections. as service pursuit $XX.X gross of last year's last consecutive revenue has year-over-year wanted over fiscal X.X encouraging. higher-margin XXXX. revenue offerings Further, points to that COVID QX report quarter ARIA our added well down perform is offerings of was the line our UCaaS in year-over-year, with internal customers in

top higher-margin offerings line. margin in coming portion to the the improvement gross years of more steady as a the performance, I this new Given heavily would anticipate contribute

accelerated on have has network the the the The it calls, and not security I weakness only concern experts. pandemic repeatedly create exacerbated As pandemic issue, these did of said infrastructures. and exposed limitations underlying the of

already past XX,XXX attacks. impacted the APT. burst-enabled agency persistent potentially The were record agency, a this organization attacks. infrastructure dozen of states classify cyber and December, threat have the and X that some by In phishing organizations experienced We security commercial cyber ransomware impacted hundreds advanced or attacks as

Today, leverages our action preloaded it all models can and lengthening security activities has threat. artificial This a at solution, in and monitoring to targeted well to declaring ARIA actors, XX the actions ADR correlates solution. which has uses malware, ADR confirmed and budgets box actions. ADR budget Out market response to not For configuration forms deployed any the impacted APTs. special behaviors, threat those pandemic SUNBURST, penetrating been The into agency Orion been techniques learning designed actor was machine of you to using solution sales find The is actively network data, their once access budget and ADR no familiar, the to in cycles. the attacks many hack their advanced as detection possible attacks, up and detect the It including threat pick effective while vulnerable -- as architecture a ARIA to by automatically via intelligence organizations. ARIA and highly constant to the requires restricting of is and advanced by in With bad detect behaviors COVID systems -- organizations. a such ARIA making hide to find or purpose-built has all attacker's heavily uses response over of that stop our as their organization applications. network and detection been midsized ransomware all bad to Code, as are verifies IT these before try

our solution ARIA called solution. that solution to customers these ADR. ARIA latest the sell when Cloud In are had in released first, cloud response, ADR version Just ways: most allows of it us companies just to ADR X need ARIA Cloud a helps we centric.

are as organizations, valuable keep entry prospects their time remote for customers serious lower cloud attacks as clean protect $XXX,XXX of the premise, and cost Second, and resources finding presence. months take At us fully price we the that ransomware as placed threats to creates as cost articles clean remedy it secure. to resolve to and workers Cybersecurity issues well the up. typically cost can their a it spectrum, for end Midsized hack as midsized point the the could or SUNBURST customers up billion, more several $XXX high to issue.

longer but no companies I of issues in matter believe budgets to such set avoid future. aside a when So resources will and the commit it's if,

$X.X our receive our to solution, customers. quarter, the million, revenue orders some of continue from technology For our we larger was TS

COVID-related caused However, small customers. in delays potential the some and impact midsized has budget and our current

we expand CSPi. bandwidth the to including demand Our managed remained in service expand to a UCaaS cruise market bright customers, remains the growing sign an are spot ship and and Latin cloud-based new practice has region. industry meet to America The their as in continues as for seeking customers important

and course, the of return continue still the pandemic, the Of out expected to they feeling of it's push effects operations.

in large We have the operations been may the second quarter. told investor start

communication obstacle, remain the have gaining we scheduled regular While to to the with continue an operators. ships access

when quickly green of some move members light. We so operators forward the are the us give team can we maintaining the

first the customers UCaaS new during add to continue quarter. fiscal We

opportunity number previous higher quarter. new We increasing pipeline demonstrations, than is have and the virtual each product been of the business quarter, the

will our that of grow $XX.X and we billion confident We is expected pie, the in pieces billion XXXX converting which from continue these to capture XXXX. opportunities in to $XX.X are

earlier ARIA provider for million. Moving and VM remain IT its health solution is quarter to care this high-performance selected customer, month, a ARIA managed the new service server Revenue internal securing for as $X.X environment. or our excited and We SPE, HPP. industries, product, management the key about telecommunication signed for we the microHSM a a

highly also that cost, those gives to its SPE scalable its a asset are generates encryption not hundreds minute IT keys services. customers offer encryption portfolio ARIA of footprint per microHSM zero KMS solution. It remote service expand to For low critical familiar, enables SPE managed powerful, the and and

positioned physical we well and of as deployment recent believe raise for the which pandemic the remain move within I companies, important will evaluation opportunities the created decisions. have be our hack brand, forward. leading is help we will engagement cable ARIA, the delaying other While critically SPE OEM and and the awareness

summarize, external service official and are EMEA U.S. addition, In factors several continue and robust vet partners the and company. currently are to reinforce others for channel the and during for potential We we speaking -- and for program, markets our wireless the cybersecurity, ensure in over sales channel team, and direct market. To the a our success. serve we our we enormous X channel added partners have we transition quarter, CSPi, recent to dozen to to managed the program opportunities chances increase the

ensure of portfolio base and products base of for are we solid success. positioned a services and have We revenue customer diverse that a and recurring

and to performance. stellar I provide overview is quarter increase on close goal our performance. Our to brief the that, customer will a first deliver fiscal Gary now financial ask transactions pipeline, With

Thanks, Victor.

revenue was margin $X As of is the fiscal X.X%, compared Victor This gross to reported gross million fiscal of XX.X% reported quarter of million. an compared his revenue remarks, of year. improvement achievement. year-over-year margin $XX.X fiscal our an of profit first despite in $X.X decline, gross profit We mentioned last margin year, opening million to XX.X% gross last in outstanding

due compared to to quarter $XXX,XXX expense increase the in for by development in headcount, Our period, in was the reductions engineering and consulting. first ago the offset year $XXX,XXX fiscal

believe with income payroll on-site fiscal the Our from due forgiveness $XXX,XXX reported the net $X.X variable which of the the the quarter PPP CARES first We -- the Program, limiting meetings approximately under the income period, the loans customers in -- incurred a $X.X the Paycheck deferred Act, compensation, result and our QX quarter associated of million, the compared which last tax taxed fiscal our of million in assets million valuation we enabled has proceeds XXXX. due associated a implemented costs, the loan, due change decrease Protection and us year the fiscal was suspension for expense prior we've income program during of We law, a stopping to to We deduction to million the cash $X.X third in short-term SG&A quarterly was received decreased to the compared buyback included is cash end QX tax PPP PPP expenses with primarily investment and against the immediate fiscal tax of travel-related of with to pandemic the $XX.X The ended allowance expense approximately to ago at write-off quarter our offset The the measures ongoing loss the for in our deferred as higher year the fiscal onetime expenses assets cash XXXX, in the approximately tax a and allowing from stock from related the first fiscal customers. loan $X.X XXXX The and quarter in first net loan income of XXXX. preserve prospective of cash. is of forgiveness fiscal covered the taxed $XXX,XXX to company's quarter. dividend by the the in $XXX through $XXX,XXX. for quarter excluded of along change fiscal a year's purposes. fiscal in of the million in including of for PPP first with the the

our a will foreseeable the to us execute process maintain plan. similar for business the future, cash We preservation resources allowing

I from we've that, our will the of to to years Our the positioned this over leverage to past the over to business questions. be take and benefit made is turn investments efforts. development that couple With your operator objective

Instructions] question from today we Partners] Jonathan our Hodnik with take [Operator [Compound will first And

long and it. on you're realizing executing your fronts. We've the with It's salute in The accomplishments all is investors. it with for you I investors. you met we've a time just to want been past, seen Obviously, market on

so you thank So much.

you. Thank

you. Thank

Appreciate it.

will to And with next Nerges Segren we Investments. go Joseph

them one. for or first the security, ask they're -- security, CEO easy or question. -- money maintain for increased happy is you That with simple. or guys responsible real This a IT going who's guys of or loaded paying either that I'm know for paying to a is of the you you to the cost security? an whoever cost a of the CFO It's

No.

happy The answer . is that. to nobody pay is

Not at all.

website. your So me from follow X, comes let up. Point this and

On of manpower requires XX% gives ADR SOC, the faster. security ARIA XXXx X/XXXth costs is operations program. a in that your or ADR box the less, ARIA and center,

those sell lineup you offering sales so reason turmoil all to one believe of do should to -- any earlier. in life, hold been of around. those more of this I why, X But to any a any with ready lot It's advantage I've but implement X be that X Now other to a you're for to hasn't thing. of or those much if this. And And for understand I people caused my hard it. type has should get pandemic existed, one I have people it have taken advantages? able incorporate

recognition to Joe, we Building in accounts, for years and popped it building that we're doing referenceable be is No, said, you other it's compete because it products longer. said only you, space the name think that on. was would thing base, everything crowded is thing been you or players -- the some we've honest only with always do other XX it have customer -- with with XX, -- this, XX, with the getting a

and you. that's when struggled -- to to that's deal, only because honest recognition, of it's be a close if So with name it, time we the we

to you're to so got expensive. back to, incorporating advantages and pretty thing where the mean, alluding the hire I in to -- even it's go least is be demand the to that's I be power. is I -- area -- course, of got that finding to at the again, biggest key there people ability what mean compelling of But today

thinks faster, So I just guess should be that. you but everybody think I moving

You it also? probably think

agree with you. I

Yes.

the on On the slightly standard a the words, ADR the on ARIA would In way I you've where ARIA with all the areas you cover ARIA same Is platform. well the of ARIA expensive don't platform. question think almost capabilities you -- that It's implementing than as the answered it few correct? of Cloud. other platform less there's cloud through basically

want don't It's the when environment, you full cloud then remediation, correct. appliance clients you that the a But That's complete difference. would no the piece if it's -- have remediation in-cloud, in to line. in you put there's on-prem, have our if

with need cloud? they there's the And there fit that the ARIA platform? They people perfectly qualify. wouldn't out So could full in

would in their But one in fit if Yes. infrastructure it the perfectly. cloud major of is players, then

Great. sounds Great. good. That

issued SPE you that PR line. the product with On microHSM the just recently

You've I recent line with different the the this by -- couple years. news SPE product microHSM as well what's had StorMagic for and as out of product? a it mean on either -- the

mentioned -- That's it piece it. StorMagic the of you

where got development company had of and that with that product, by So purchased smaller the there of was And a the has off back and they it. relationship now events And leads that basically we're and kind and StorMagic. been is they helped at our different working integrated that trying to... marketing integration while point, done, paused got kicked that, relationship again. And

I more KeyNexus. product to the as what with the Nexus? is robust So StorMagic software it? opposed is guess,

Yes, KeyNexus. Correct.

any it upgraded better? Has been to extent? it Is

more, this The there same, the major. same. is talks that core there have product nothing but other developing is that about but is majority growing product few a changed, the and At the stage, of it but things is the

customer StorMagic Well, one base. I fairly large that a thing that up -- they looked -- have

Absolutely.

Here have you X,XXX over customers.

Correct.

this that hope into incorporating into of plus X,XXX a of some customers those would I they don't -- -- have? of some that know, So there is assume I possibility or

training with excited talking where value know their are a -- continue. listen upper We've there's don't in and and a things relationship. and to to the on they the educate working small the to how X base, joined they with about the them that on Salespeople, We're about that salespeople portion. is, only together will products marketing going the there's got of been management, lot and customer No.

will there So over a trainings of period multiple be time.

that, addressing opens to areas previously? market they some seem would it But up that that weren't

gap product our definitely their in -- line. a definitely product We filled

the they kind I X yes, relationship X due where months like just them the on that's company to of went purchased. So pause integrating to basically, But said, started.

you or added you partners? And channel Okay. this last you Is say that last... X said what did added you quarter the

Yes.

Is you're caught that appreciate. of like here. -- all I I okay. that. I good forward wasn't sounds sure moving It

Just key. the speed implementation, that's the of

We're it. working on

go Terry We'll Instructions] [Operator Investment. with Upstream to next Keratsopoulos

to that be? the particular were you markets all be potential Yes, you that cloud-centric my companies mentioned of -- question going What do targeting. you market was would think

Azure a a we're into tremendous an after. -- mid-sized lot that Rackspace go us. It's or a their Amazon going infrastructure an for opportunity have There's to companies or full that small, of and

that's onetime? Or a is this something would it And a be revenue type? recurring

It whether full-time allow just whether they them, it depends and it's manage themselves manage us just on they for we it and or purchased to option that customers. it they our an give

If -- with that also to can with a you want the just ARIA there's purchase it's support have goes you you care or hardware want that. managed maintenance licensing we fully if like we the solution, it. of and that. cloud, either our whether But And stock, would along then if take

move Davidson, investor. private Brett we And next will to

a couple of got these sinking all questions. in of I I'm acronyms.

So largest bear SolarWinds me the these if get at hack twist that ARIA or able that will? to have of in more less and I'm HSM, being issue not or you're going network to access I mistaken, issue with But couple to doesn't keys, the around. a free may gain to the with address

Not full it Yes. Part a it that's of we're thing is was stationary are we're of biggest keys the VMware the where positioning. value it changing. the methodology inside get part in the that IT are companies using It's touting, that There's key, constantly just that these And a what but a infrastructure, one in, that. of it's we're where that. way. thing, used definitely you to doing lot people

guess And it the detach you -- of guys sort VMware. from I that

architect So -- separate it a a separate to hardware? moves

keys Well, are constantly it's the just changing.

SPE, Yes. they're foreign Yes. right. a entity? gathered The All I

Correct.

Yes.

these Are hard size I beginners? an they to mean, guys are of business? them. sized of a kind the of it's medium idea And like get Or...

medium a sized business. they're No,

like to Or this I with them? there, just... is mean, of potential follow-on kind And

Yes.

offering did, it their like would contracts, that and they ones ones all feature especially to customers, customers of that to So the that is adopted their an they're they're or now for it. the an they internally on potential are targeting they making to renewal up what added this add

So early the now. believe their adopted, technology right but right it's they the an relationship that in for now, internal purposes technology they

this strictly Or hardware SaaS? Now is is this also?

In a with and it's software support No, along it's -- that hardware it. it's both. that particular case, goes and

you providing be support? the Or they'll And will? guys

their maintenance licensing provide they they with goes own and we for account in along the base. support everything MSSP, they're be and that. that support purchase, so that the existing the Well, providing product and But to their would

would layered and come like their you to for it a thing. for be of So support They kind purchase their...

Correct. Right.

the to that me So I mean, leads next thing the is revenues.

So how accounted this, around the a to So accounted and I'm hardware for going it's how for up this? revenues there a be get this? is revenues hand show going software portion are the -- to from differently? to Or and of a are trying

Well, bundle. it's -- you're much pretty a

And So contracts. it as it's the end under a of we'll then an could package, And would longer-term you're these revenue the at and have -- point. items like that, rules spread. breakout that the that maintenance be recognizing be

it's or of it. Most within each depending of outs with Is an don't not how an out setting have set them. them there initially. up them up So out as we're

on no in Or their So this? customers that of factor has does this? the depending revenue many component how change adopt

factor. Yes. That have would a

support, it's then a period I think over recognize would. doing of It Yes. we're don't, the and onetime they're if event. we everything, we it then doing a then time, If could

it. Got

that guys you going call, period. to out release on that? back you service Has on -- about for again, you put had anybody up press where free asked hits taking that? the the the you time one that I'd Have actually any So last

now. We've conversations clients with some right had some

a Government, you previously appears of agencies? SolarWinds. dealing these do exploit of guys any another can some I'm they somebody of with going the lot government Or had to by contact have been here. any Have who PSA, have the you agencies? have it government direction context with hit USDA, had

we've not everything -- know -- to, or the something we're -- you the the but it's talked government right There's really it now. cycle don't We government, No. is state with that on years. focusing

We're So trying focus it, a we'll the right now. commercial occurs, to work it's stick in space. if on something but not

All right.

pretty all acronyms. much have. I'm And going be still to that's those I in I all think study

So...

We'll glossary. send you our

like Speaking of there... that, that is something there the on website? Is

free questions, isn't. There if have any But call. you feel Brett, to No.

Group. go Stewart We'll next Instructions] [Operator to from James Investment

really Yes. Congratulations Victor Gary. the to you're lights Boy, and knocking both out.

it I meetings to you secondly, that know poised where think particularly plan seems you're to cloud for area like I business less where Are is question. you it I growth, standpoint? requires around the from on in area manpower name you conventions get but And be your or that one explosive there exciting. IT can spread attending? can this the implement assume had I your quickly, really accelerate. another industry seems

about will still a Well, And able that to to people's we're we're first -- not question, because hoping more lot centers product, yes, excited your inside been be the getting conversations. just the a big, of has cloud-based data have we're faster, challenge. adoption big

So POCs a the close able rate. at will we're and faster hoping we're occur to

to -- them half have proof-of-concept we ARIA hour we've at audience shows, do the forward some all talked currently and X hour averaging to for least the been up conversations moving and with half a Southwell, come X -- about the to and then audience virtual, up has in X minutes shows there's shows and They're give As you, or or or I be some kickers, tire to that having X leads which Gary with who -- technology. is that -- met, are talk -- honest doing And know XX some those. we they to now. and a has interesting you've still a month, but the

month, but done So he's yes, month we've of X that if X or those. -- would it's don't so virtual these done I other couple presentations. a every a it's I know

trying product systems. into let to faced our know, of sounds -- get real group our the be going great. hard you hack I'm at to we're of your that because looking pushing people Well, one companies with to to Also, I'll always I'm start

congratulations. you're really work the doing. I again, So appreciate

Elizabeth investor. We a now will private to go Millet,

a relationship couple a have curious seems I'm wonderful service managed you customers. questions. about like your of with it Just

entry trusted customers? of sales So name Is Or a have taken the that... -- barriers since wouldn't many place, is there of barriers the be if relationship have in ARIA? within already of that how is on to you that that cycle -- recognition, one natural them group

customers all various We and each are happen now our conversations that right MSP targeting to one.

it of move mid-budget then because small still constraints. Some is And of some the they're with to they're in them, ready forward to adoption.

else? gets of a then So are budget? sales they because cycle going little Are what a if who Are and they the your likely to more? can purchase deferring with to they're cycle as on competition. they someone most get seeing of someone you question your us sort people, point me sales I else? you speaking mean that explain your -- to with you going when you're -- the with competitor are the that Like

little It's of a be bit with you. everything, honest to

January, -- they for, for get. looking go them pushed and month that going they're they're budgets could amount opportunities in and of it they're that management have for that or of the budgets the supposed this now to or X back month whether be were they have be -- they off. budgets, ask there's next saying And got right to budgets to and the constraint Some X

cheaper, lower, have with doesn't we had on them of much. a that do as gone cents the But only they offer. Some dollar it

good right? than endpoint protection, -- a want instance, are there at other products but protection. very endpoint They just product there Well, for a endpoint protection. have we're very price, out more We that good

have business and been some $X back in burner deal. some manufacturers lost the that the found couple they so they but we out money, at really it they user. the their than suite product something just was own endpoint don't a of a sim them, of So they've have take not And -- right big money the protection, those they but were need, big just against lost we the while to get of now. a product, more when mention to I'd the bad cut know rather get were they came selling there. just we $X, on cover the either a or they put budget that that true players more cases, that for PC significantly, in of were that And on then to can

why make idea it's that the play. COVID understand to don't you software need these at to understand I -- be this And sales in-person because time, a the but same I quite effect,

you can So a to that bit? little talk

It's not remediation. strictly a recently, full it to ADR, until hardware in the do software the and play. a cloud be was software, just to with on had play we line Up

with the was our in had do get we'd to appliance we line, to go So that they -- would that line in taps, so passing and the as have. get the have network to inside and remediation traffic

to their can so find is Could you them. us more? My last website question and anything on them we little that SPE, I and can't I learn bit point googled also a their about CEO,

LinkedIn. website. on our second. put don't Sure. message We board something put now, have can right it this on We're going I our to on right it or

Okay.

is. can't them. Then -- how because recognition I anything curious know about -- Just good but it's recognition, that a good don't a good we it's find if a

And I'll we turn time. at call showing the further you, questions remarks. additional I that am this have Victor back no or for to closing

Thank I for shareholders and as thank continued our you. always, support. want interest to And

our I to CSPi's offering. sharing May. long-term the our will increased and forward will look remain dynamics our in where manage business when Until safe. fiscal industry prompt We excited prospects quarter and the they opportunities interest leverage exist. Gary results about in growth second and and to stay continue We then,

for you participation. conclude your program. today's This does Thank

at time. disconnect any You may