Csp Inc /Ma/ Q4 FY2023 Earnings Call

Greetings, and welcome to CSPI's Fourth Quarter and Fiscal Year 2023 Conference Call. At this time, all participants are in a listen-only mode, and a question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Michael Polyviou, IR at EVC Group. Sir, the floor is yours.

Thank you, Alex. Hello, everyone, and thank you for joining us to review CSPi's Fiscal 2023 Full Year Results, which ended September 30, 2023. With me on the call today is Victor Dellovo, CSPi's Chief Executive Officer; and Gary Levine, CSPi's Chief Financial Officer. After Victor and Gary conclude your opening remarks, we will then open the call for questions. Statements made by CSPi's management on today's call regarding the Company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimates and continue, as well as similar expressions, are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results. The Company cautions you that these statements reflect current expectations about the Company's future performance or events and are subject to several uncertainties, risks and other influences, many of which are beyond the Company's control, that may influence the accuracy of the statements and the projections upon which the 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. Furthermore, the 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-looking statements are qualified in their entirety by this cautionary statement, as CSPI undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, after the date thereof. With that, I'll turn it over to Victor Dellovo, Chief Executive Officer. Vic, please go ahead.

Thanks, Michael, and good morning, everyone. Earlier this morning, we announced our fiscal 2023 full-year results, and I'm pleased to report we achieved revenue growth of 19% compared to fiscal 2022. I believe our strong performance is due to several factors, including the sustained contribution of the Technology Solutions business, our ability to successfully convert a sizable portion of our backlog to revenue, and our proactive decision to leverage our strong balance sheet to finance large customer orders. Furthermore, we reported a gross margin percentage of 34% and grew EPS well over 100% from the prior year, all significant accomplishments that raise our confidence level that we can continue executing our strategy of transitioning the business to higher-margin products and services. Moreover, we are continuing to experience positive momentum to kick off 2024 as we already achieved significant accomplishments in the Technology Solution and High-Performance Product businesses. First, let me address the backlog issue, then I will provide an overview of the TS business and spend a few minutes highlighting some of our recent and exciting developments within the HPP business. As many of you already know, we entered fiscal 2023 with a level of uncertainty due to well-documented supply chain issues that impacted global economies. Specific to CSPi, the inability to receive key components from suppliers kept us from shipping orders to our new customers, raising our backlog to near-record levels and dampening our revenue opportunities. However, as the supply chain issue began to ease up during the year, we started receiving some of these key components that allowed us to ship finished goods and reduce the backlog to a more normalized pre-pandemic level of approximately $7.6 million. I applaud the team's ability to remain engaged with the customers throughout this period. I believe our clients' loyalty demonstrates the value we bring to them because they recognize that the products and solutions are the most effective, cost-efficient answers to their critical needs. Our performance throughout fiscal 2023 was driven by the continued performance of our Technology Solution or TS business, which grew compared to fiscal 2022. This success continues to be driven by customers' increased use of implementation, installation and training capabilities. Regarding UCaaS, it turned a corner in the second half of fiscal 2023, and it is now a profitable business. We believe we'll continue to see positive developments within the UCaaS as we move forward through fiscal 2024. Now turning to our High-Performance Products and HPP business, we recorded total revenue of $6.9 million for the fiscal year compared to $3.8 million in fiscal 2022. The results were within our expectations. However, the level of optimism within the business is high and increasingly growing following the recent launch of AZT PROTECT. AZT's advancement allows us to offer our customers a giant leap forward in the evolution of cybersecurity solutions. AZT's performance surpasses what's available on the market today, and it's a new generation of endpoint application cybersecurity protection designed for both critical operational technology and IT environments. The unique solution protects a line of organizations' endpoints from a full spectrum of cyber attacks and intrusion techniques, including advanced zero-day attacks, malware, ransomware, supply chain vulnerabilities, and even threats that are completely unknown to security teams. By deploying artificial intelligence capabilities, AZT halts attacks before damage occurs, ensuring seamless operations without disruption or downtime. It lowers the risk code base of security vulnerabilities exploited on endpoint devices to near zero without the need for constant patching. Developed internally, we knew AZT was going to be a game changer for the HPP business. So the team has significantly targeted several high-profile conferences and seminars to raise awareness of AZT, including the 18th Annual Cybersecurity Conference, which was held in Houston earlier this month for the oil and natural gas industry. The Rockwell Automation Conference, which was also held last month in Boston, was the world's premier industrial automation and digital transformation event. The ICS Cybersecurity Conference, held in Atlanta in October, is the largest, longest-running event series focused on industrial cybersecurity. Since 2000, the conference has gathered ICS cybersecurity stakeholders across various industries and attracts operational and control engineers, IT professionals, government vendors, and academics. Finally, the ManuSec U.S. Summit, held in Chicago in October, is the premier conference for cybersecurity and manufacturing, addressing sectors' drive towards digital and automation and the imperative to balance it with security. We know this is a crowded field, so a visible on-site presence at these and other events was critical and allowed the team to engage and communicate with key influencers and prospective clients, including Fortune 500 companies. The feedback has been quite positive. We often hear comments like, 'We see the need for something like AZT.' Subsequent to the end of fiscal 2023, we received orders from a Fortune 500 chemical manufacturer to protect its critical production application from all forms of attack, enabling production lines to continue running without disruption. We also received an order from a Western Intelligence Agency to protect its critical intelligence gathering and analysis operations from cybersecurity attacks. This new contract builds on ARIA cybersecurity's proven track record, which improves security solutions for military and intelligence agencies around the world. Additionally, we launched our AZT PROTECT solution in Australia via a partnership with Logi-Tech, a leading local managed security service provider. By adding AZT PROTECT to its portfolio, Logi-Tech can offer a groundbreaking service protecting critical applications and operational technology and IT environments such as manufacturing, mining, and government. To summarize, we achieved strong growth in our fiscal 2023 and positioned the Company for even greater success in the coming years. Although the TS business has been the growth driver over the past few years, the emergence of AZT offers an opportunity for both businesses to grow side by side and provide consistent growth with significant upside potential. With that, I will now ask Gary to provide a brief overview of the fiscal year's financial performance.

Thank you, Victor. For the fourth quarter ended September 30, we reported revenue of $15.3 million compared to $16.7 million in the year-ago fiscal fourth quarter. We reported a significant revenue increase of 66% in last year's Q4 as we began to work down the record backlog, so the comparability represented a high bar. For Q4, gross profit was $5.2 million or 33.8%, respectively. We also lowered compared to the year ago period. However, whereas the supply chain was responsible for some of the choppiness, we achieved significant annual growth in fiscal 2023 compared to fiscal 2022 as we reported revenue of $6.4 million, a 19% increase compared to $54.4 million in the fiscal year-ago. As Victor mentioned, this performance is due to the continued success of converting some of the older backlog, allowing us to deliver products to our customers. We reported gross profit of $21.9 million or 34% of sales compared to $18.8 million or 35% of sales in fiscal 2022. The slight decrease in gross margin compared to the year-ago period was anticipated and due to the business mix and the lower margin products that had been in backlog. We continue to believe our annual gross margin will expand as the business transitions to higher-margin products and services. For the fourth quarter, our engineering and development expense was $700,000, down $150,000 from the year-ago fiscal quarter due to a reduction in outside contractors and not filling some open positions. Our SG&A costs for the fourth quarter were $4.8 million, similar to last year. For the full fiscal year, our engineering and development expense was $3.1 million, relatively flat compared to the year-ago period. Our SG&A expenses in fiscal '23 were $16.9 million compared to $15.8 million in fiscal 2022 due to increased variable compensation for bonuses, sales commissions for higher sales, as well as payroll and initial costs associated with unveiling and launching AZT, which includes conference participation and hiring several salespeople. We reported net income of $5.2 million or $1.09 per diluted share for the fiscal year ended September 30, 2023, compared to net income of $1.9 million or $0.42 per diluted share for the fiscal year ended September 30, 2022. During the last quarter of fiscal year 2023, the Company received an employee retention credit of $2.1 million net of expenses, which was not available in fiscal 2022. We had a tax benefit of $0.5 million due to the release of the valuation allowance against our company's deferred tax assets. Included in the net income is stock compensation, a non-cash expense of $1.1 million. The Company had cash and cash equivalents of $25.2 million as of September 30, 2023, compared to cash and cash equivalents of $24 million as of September 30, 2022. The cash and cash equivalents are considerably higher compared to cash and cash equivalents of $13.8 million for the quarter ended June 30, 2023, as significant cash flows were generated through the payment of receivables, including payment from financing sales provided to customers prior to fiscal year 2023. We believe this robust financial position allowed us to successfully implement this approach. It yielded positive results, and we will entertain certain options if it meets our strictest criteria. I also want to highlight that the Board of Directors approved a quarterly dividend of $0.04 per share payable on January 9, 2024, to shareholders of record on the close of business of December 22, 2023. With that, I will turn it over to the operator to take your questions.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question is coming from Joseph Nerges with Segren Investments. Your line is live.

You must have shook up the market today because the stock is down like 3 points. So, it's in your press release. Let me explain what I think is going on. With a big drop in the backlog, people think that, obviously, sales aren't there going forward. That's the concern. Yet in your press release, you issued, you said that you thought the Technology Solutions, which, of course, is the bulk of our sales right now, is expecting a major contribution this year in '24. You're looking for good business with new customers and expanded existing customers. Is that what you're trying to convey that you're expecting expanded technical service - Technology Solutions business segment?

Yes, that's correct, Joe. We budgeted for significant growth in 2024.

So in effect, the drop in the backlog from last year to this year is not really going to cause a problem when you were expecting for '24 growth, at least in that segment of the division going forward?

That's correct.

The backlog in effect - granted, it's down - what was it, $20 million or something like that, that we had because we couldn't get a lot of the orders through the supply channel. So, we're really not concerned. The backlog may be low, but businesses.

It's back to pre-pandemic levels. Basically, we were just trying to talk about where the backlog was, where it is because now it's not a factor any longer moving forward. It's pretty much business as usual for 95% of the products that we sell, and we're probably not going to be discussing it any further moving forward.

And a point I guess I'm asking you, even though it's back to pre-pandemic levels, it has no effect on what we think is going to be business '24. We think it's sufficient to grow the business in that - at least in the TS division.

Correct.

Second point on the AZT product, that's a dynamic product, and I don't think people realize how much that can contribute to the future of this company. You said you added salespeople and they're responsible for bringing in new business? Are we talking about new business beyond the two press releases were issued one on the chemical company, one on the Western Intelligence Agency business? Do we have questions beyond that?

They're growing the pipeline right now, Joe.

Okay. So we have a lot. And when we're talking about the pipeline, are we talking about customers that are testing the product at their facilities? I assume.

Some of them are doing proofs of concept already. They’re large Fortune 500 companies. They are the largest companies out there, so the sales cycle might be a little longer, but they're quite engaged right from the beginning. A lot of them met him at the show. We talked to them and within a week or two, they wanted to discuss the product further, and some of them are already looking to set up a proof of concept. But with the holidays, some of it's getting pushed a little bit to the first quarter just because of Thanksgiving and Christmas, but they're quite engaged right from day one when we met them at the shows.

Okay. Great. Well, that's understandable. Just the time of year we're at right now. Talking about the existing now, in the two press releases you issued, you never talked about the size of the contract. And I assume that most of these people are going to be paying on a monthly basis. That's the type of over a period of a number of years, do they contract it out. Is that correct? We're talking about not upfront payment for the software, mostly on a monthly basis?

No, the first units that we put in there were just to buy it outright. As we expand, these companies are so large, Joe, that 170 locations and it was whether we boil the ocean and try to take all 170 down, and that would take about a year to two years, they said, to get that processed? Or do we start seeding it in one or two of their locations and expand from there? Like one of the government agencies is already talking to seven different locations. Some of them have had some money left over and they wanted to cut POs right away. So right now, it's about customer engagement, getting them to test it, buy it and evangelize when we need references moving forward.

So in both cases, they're rolling out the software in segments, let's put it that way. You said in one case, you talked about 170 plants, well.

Unfortunately, we have to talk to all 170 plants because they all have separate budgets. So, we're going to knock one down at a time. But to get our product inside their environment, saying it's running, it's working, was one of the most important factors and we did it quickly, right, within less than 60 days from beginning to end.

I assume we charge based on the number of devices being protected, or what you might refer to as endpoints. The more endpoints we safeguard, the higher the bill.

Correct.

Okay. So, as we roll it out little by little, supposedly the bill is increasing little by little, let's put it that way, as they expand within their divisions.

Yes. Some departments will have to purchase it outright and some of them will want to pay on a monthly basis or a yearly basis most likely, right? Sign a three-year deal and pay it each and every year.

It depends on how the departments decide; in some cases, they will determine whether to buy or lease.

Pretty much, yes.

Okay. Regarding the cash, I assume a significant portion of it is held in short-term treasury bills. How is that structured, Gary? Do we have a considerable amount invested in rolling over short-term treasuries?

Yes, we roll them over short-term and stay in some money market funds. But yes, we're rolling them over.

Okay. And Logi-Tech, how are they doing? Now I realize that you just put a PR on that Australian partner. Have they been able to have the same, let's say, initial success that we're having as far as interest in Australia?

Yes, they're generating opportunities that we're working with them hand-in-hand.

Okay. All right. That's all I've got right now. It sounds like it was a great press release. And of course, the AZT product has changed HPP dramatically from where I am sitting.

Yes, we're excited. All the feedback has been positive. No one has said, 'Oh, I don't see the value in this. I don't understand it.' We're definitely changing people's minds about how to secure endpoints and applications. So the conversations are happening frequently, and they're getting it.

Yes. And just one more question. Australia is an example, but there are likely additional countries that have similar reporting requirements to those in the U.S. and Australia. So, is there an opportunity to establish similar operations for managed security service providers in other countries, like the U.K. or Germany?

Yes, of course, Joe. It's just the size of our organization that kind of prohibits us from moving as fast as we would like to, right? As I said, TS has been doing so well that it paid for all the development of this new product, but the HPP is truly a start-up organization with a new product that we believe is game-changing. But yes, it's just our size right now, but we're working as efficiently as we possibly can to talk to as many people. We rolled out and did as many shows that we could get ourselves into, and the feedback has been really, really good. We have over 50 opportunities that we're working right now just from those couple of shows that we did over the last few months.

50 opportunities, is that what you said?

Yes, over 50. Yes, over 50.

Do we know how many people we have in the U.K.? I am aware that we have a very small sales force there. We still have a couple of people in that location.

Yes, we do.

And are they up to speed on this? They really kind of like Technology Solution-type salespeople, is that not correct as opposed to HPP salespeople?

Correct.

But they're familiar with the product.

Yes. We cross-trained all our salespeople on AZT, so they're able to at least ask the right questions and engage the engineers on the AZT side when there's an opportunity. Some opportunities that we're working right now came from the TS side.

I'm sure it is really exciting going forward, and I appreciate the time.

Our next question is coming from Mike Price, who is an investor. Sir, your line is live.

Can you give us an idea of how big you think the market opportunity is for AZT?

Multibillion.

Okay. And that being said, it's nice that you're having conversations with 50 potential customers. But going back two quarters ago, you said that a problem CSPI has is a lack of name recognition. And last quarter, after the introduction of AZT, I asked the question of not having name recognition. Is it not better and more efficient to partner with somebody that does have name recognition? Your response was that you've only been in the market for 30 days. But the question now is: do potential customers, more than 50, know CSPI and potential competitors and potential partners? Is it not more efficient? Because a lot of times, the best product doesn't even get seen in the market because it's not the fastest introduced to the market.

I agree with that. We are engaging with and have signed agreements with some of the largest security resellers and integrators in the industry, and we have begun collaborating on opportunities with them. We are investing significantly in marketing at various shows and have targeted the top 20 to 30 security-focused resellers and integrators, initiating conversations with them. We met some of these companies at the shows, where they recognized the demand and some even reached out to us about major opportunities in the healthcare sector, specifically for protecting Microsoft OS systems on Android, which we are developing in collaboration with them. Our goal is to raise our profile quickly by leveraging the reputation of these large security resellers. However, their selection process is rigorous, and they do not accept every security partner. Fortunately, two of the largest ones have already signed contracts with us to represent our offerings.

Okay. Last quarter, I asked, and I think Joe Nerges just asked also about using funds to buy shares, and prior to today, the stock had doubled. Did you buy any shares during the quarter?

No.

No.

Okay. What's happening today? Does this not provide an opportunity with $25 million in cash? I mean, the stock is down 25% today. Is this not in the thought process?

It is in the thought process. We talked about it this morning, Gary and I.

Yes.

Okay. And the final question I have, prior to today, it's great since the last conference call that the stock price has doubled. But what shows today is the small float in the liquidity. I couldn't sell a measurable number of shares to take a profit. And Victor, you couldn't then Joe Nerges certainly couldn't. So, the question is, the market cap here is, what, $90 million and looking at somebody like Dragos, who I assume is a competitor, recently raised $200 million with a $1.7 billion valuation. It seems like a big discrepancy between the CSPI valuation and somebody like that, where CSPI supposedly has a revolutionary product, and you think it's as good or better than anything out there. Can you address that and how we close the gap?

We talked to Dragos while they were at the show, and they are not a competitor. Our offerings will complement what they do. They have gaps that our product can fill, and we are eager to engage with companies like that. There is really no one else in the market doing exactly what we are doing at the core application level.

Okay. So if you're not exactly like it, that seems that CSPI and AZT should have more value if the market is aware of it with a multibillion-dollar market opportunity. What am I missing here?

You are not, but like the product was released at the end of July, and we're evangelizing and rolling it out as fast as possible.

Okay.

Dragos has been doing it for years. So, they've been in the market a little longer than we have with this product.

No, no, no. I appreciate the fact that they've been doing it longer, but I'm talking about the discrepancy in valuation. Sure, it might take you a while to get in there, but you're valued at $90 million and they've got a valuation of $1.7 billion. I mean that's a huge discrepancy. So, okay, well, it looks cheap to me here.

Thank you. Have a great day.

Our next question is coming from Brett Davidson, who is a private investor. Your line is live.

The AZT thing, so you can sell it on a subscription model. How long does it take to roll this out? So you sign a contract tomorrow, what's involved in rolling this out to a customer?

What makes our product special is that we can be rolled out very quickly. We've done 1,000 endpoints in less than an hour. There's a little tweaking after the fact, but the way we roll out our product is like a driver. It goes on the system, expands, and looks at all the applications. You ask a few questions, and it starts protecting immediately within that time frame. When we rolled out the last couple of hundred endpoints, it was done in less than 30 minutes. We built it in conjunction with customer feedback, which was the biggest thing, especially when we developed it for the OT space. You cannot have downtime in manufacturing facilities at all. That's the difference with our product - it rolls out without needing a reboot. That's really significant compared to all the other products that do what we do but not really. Most require a reboot, and it takes a long time and sometimes months to roll out. Ours is done very quickly and efficiently.

And that adds tremendous expense in a manufacturing environment. Yes, I can see it would be a big advantage.

Yes, I think that's a difference. A lot of times, with other products, you would have to have those systems taken down. The way we roll it out, the system does not have to be taken down. It could still be working and doing what it needs to do in conjunction with us implementing our product inside that environment. No downtime.

So that ends up affecting the value proposition here because that's kind of like a hit expense and competitor product. So if you're rolling this out on top, let's say, it's a business with 10 sites. I mean, is this something that the physical location matters, so you're going to do one site at a time? Or does this depend on their IT infrastructure, how that's set up, and you can literally just blanket 10 locations at once?

We could do 10 locations at once. We could do 100 locations at once. It does not matter. All we need is access to do what they want us to do or we could walk it through. The one rollout we did with that government agency at that one location, we were not able to have any access to that whatsoever. It's a closed environment. We just walked them through it, and within less than an hour, they were up and running, and they had never touched the product in their life.

Now when you say you walk them through it, was this physical on-site? Or was this...

No. We weren't, just over the phone. We had no access to the site or their systems.

So you guys don't even have to be physically present to walk them through.

Correct.

Got it. So then all the time sucked up in this process is all going to be in the sales cycle.

On the sales cycle.

So once you get the dotted line, you're ready to go and it can roll this out.

As fast as they roll out, we can help them.

So, I mean, the press releases the past few weeks have been great. With 50 of these things in the cycle, I mean, is this something we can anticipate at maybe a more frequent basis that these things are going to be rolling out announcing these new relationships?

The significant ones, I'm going to say, we're evangelizing as much as we can. We're trying to get people to see the announcements, and some of the larger ones that we're working on, I'll definitely be announcing those as soon as they hit.

Got it. And the last thing I just want to touch on, I know that the cruise ship thing was still winding back up. Is there been any headway making getting those jobs started back up?

Yes. We have resumed some work with cruise lines, focusing on a network access control solution. We are rolling this out at various locations. This business has started to pick up again, and we currently have staff in Japan working on some boats this week. However, the scheduling has become less predictable compared to before. Previously, we received a detailed schedule for multiple ships and days in advance, which made planning straightforward. Now, the requests come in more sporadically with much shorter notice. We are still engaging in business with them, but it is not as organized as it used to be.

And maybe one more follow-up question. So the AZT thing, I saw the Western intelligence, and we're talking about manufacturing, and you also mentioned healthcare. Are there any other areas that kind of jump out where this would be a really good fit?

It's really anywhere, right? Because when we first rolled out the announcement, we focused because we worked with some large manufacturing companies. We concentrated on the OT space, where zero downtime was essential when we rolled it out into the Windows world first, and then we rolled it out into the Linux world. So we have different types of operating systems that we can support. One of our key factors compared to anyone who thinks they play in the space is that we go all the way back to XP in the early versions of Linux. Most companies only cover one or two versions back. We support all the way back to XP. So that's definitely a game-changer for us, especially in the OT space because a lot of these manufacturers don't upgrade their systems because, again, I mentioned zero downtime. The latest version we’re rolling out right now is for the IT environment, which allows patching. We can schedule things, so we're rolling that out as we speak. You'll probably see an announcement about that soon, but we're also rolling out a full product line version of AZT.

And that would be for like data centers?

Correct.

So that's going to be a significant number of points that you guys could hit.

Correct, correct. We're talking to some financial institutions right now. We're also going to talk to our managed service customers that we're supporting right now about potentially increasing their monthly spend by rolling out AZT on their IT servers to protect their applications at the core level.

That's quite a few endpoints.

Yes, quite a few endpoints. We're going to talk to every one of our managed service customers. Some of them will say yes, someone will say no. It just depends on budgets, but that's what's going on right now with these conversations happening as we speak with some of our larger MSP customers.

Well, and look forward to the continued success here.

Thanks. Have a good one. Happy holidays.

We have a question from Paul Scolardi, who is a private investor.

I have several questions. The first one is you have a revolutionary unique product in this AZT. You're a smaller unknown company. Why not go partner with Dragos or even like Palo Alto or one of the big cybersecurity companies that have the relationships that can get this revolutionary product out there quicker than you can on your own? That's my first question.

I think I mentioned it earlier. We are talking to all types of manufacturers, right, people who are in that space. I can't mention who we're talking to now, but there are quite a few conversations ongoing with companies in the security space that we would complement. We would go side by side with. We don't compete with them, and we would enhance the overall security performance in every potential environment. So, yes, those conversations are going on right now.

Okay. I assume if something happens, we're going to hear about it, correct?

You will hear about every exciting news that comes across the board. I'm trying to share all the information as it comes across as soon as possible.

Well, yes, I mean, if I may be really honest and with all respect, you have done an excellent job with press releases up until today. I think while we're seeing the reaction in the stock right now is because you did a poor job of explaining the excitement that you have now on the call and the opportunity like the reseller contracts that can go into networks. All network endpoints also have that massive TAM. You did a poor job in the press release capturing the excitement on AZT. So my question is, you have a responsibility to shareholders in the fact that you're a small company with a very small float, and nobody knows about this company, the story, or this opportunity. I'd like to say you're at the Super Bowl, and nobody knows that you're playing. What is your strategy to enhance shareholder value since with the poor press release today, shareholders are suffering for what's a massive opportunity? Right now, the stock is at one-time sales plus cash, it's profitable, it seems like a dividend, it has a great balance sheet, and it has a really massive opportunity in front of it. How are you going to get the story and connect to Wall Street? Enhance shareholder value because it's a great story, but nobody knows about it?

Yes. I think we talked about that this whole conversation, right? We're doing events. I'm talking to partners. We're talking to distribution lines where, as I have said, the shareholders' expectations sometimes may be a little bit out of whack, offline, where they want a dividend, they want it to be increased, they want us to have earnings per share, and they want us to self-fund a startup. So, at this stage of the game, we enhanced our marketing budget by 10x. We've hired industry-leading salespeople that frankly cost a lot, but we figured we'd get better quality. We're able to get into oil and gas and talk to large manufacturers and oil gas companies directly that they had relationships with in the past. That's what we're doing right now.

No, my question more was your communication with the Street in getting the story that's execution. You're doing a great job there. I'm talking about why did the press releases that you got some good new resellers? We don't know about that. You have 50 opportunities that we just learned about, and how do we get that out there in a way that lets the story connect?

Yes, these announcements are very recent. We had a call just as these were being finalized, and you will start to see developments rolling out soon. We held this press conference today, and I know much of this information will be shared today. You can expect to see many updates in the next few weeks, along with some exciting news regarding closing opportunities.

Okay. Yes. I think that's where taking on a strategic investor, even with a big name, would be a great way as well to give you guys the name and the resources to rapidly expand this because you have such a low structure. You're selling software; it's not going to take a lot of sales like it would for another company to drop a lot of EPS on the bottom line. Last question, obviously, it's a small equity structure. At some point in the future, would you consider a forward stock split? Funds can have the ability to buy more shares?

Yes. We've talked about that at the Board level at every meeting regarding what our options are. So yes, we would consider everything, and that's one of the things that we've talked about.

We're pleased with the execution. However, I feel that the press release today underplayed the AZT opportunity. While that’s not a major issue, it’s crucial that we effectively communicate this exciting opportunity. Clear and consistent communication is essential, especially for small-cap companies. If we're operating like a private company, potential investors may not even realize our achievements. Great job on execution, and I hope to see more updates on AZT to address the initial lack of excitement in the press release.

Fair enough. Thanks for your feedback. Appreciate it.

Our final question today is coming from John Crotty, who is an investor. Your line is live.

I got to tell you, I really enjoyed that last back and forth with you and Paul because those were some of my questions. I'd like to just kind of turn and talk on a more technical side now. As Paul mentioned, there's a lot of headline news out there with all the cyber attacks, especially with China, Taiwan, Ukraine, Russia, what interested me the most was the fact the way they're breaking through the firewall, they have been a harder time coming through. I'm speaking more technically now. I think you guys are sitting in a potential sweet spot. If I understand this properly, AZT is deployed on the other side of the firewall, where it's listening all the time as employees are now being the lead target for producing the cyber threats, whether it's through a USB or through a personal computer plugged into the network. I'm saying that because I noticed you were saying the word air-gapped quite a lot. To me, that means it's almost like it's a self-contained network without a direct link or constant link to the Internet. I'm just hoping you can maybe explain more to the rest of the world because that's a real serious way of breaking in now. I believe that's how we've seen some certain nuclear reactions go down, if you could clarify that and give me a little more understanding.

Okay. I'll do my best on the technical side. So where we reside is in the servers, right, at the core of the servers where it's a driver that gets installed, and it's about 40 meg, very, very small, uses 1% or 2% CPU utilization. What happens is once that gets installed, it expands and looks at every single application. We're talking to some customers right now that are testing it on literally over 1,000 systems that are running 1,100 applications at one time. It goes out and looks at all 1,100 applications. The person has looked at it and say, is it a viable application? Yes, it is. This is where we're at. At that point, it's not going to allow anything besides what's installed to be executed on that. If someone tries to get in - because the biggest thing is when end users open up with the executables, then all of a sudden, they're inside the system and everything goes haywire. We're at the very beginning at the core, and that's where we start protecting. We look at all the applications and protect them. That's the perfect picture at that point, and we stop everything immediately at that stage.

Okay. And that makes sense. Is that sitting in the NVIDIA chip? Or is it just a software install with the driver?

It's just a software install in the driver. It's about 40 meg.

Oh, small.

Very, very small.

And one last question. I'm sorry. With the AI attached to it, is it self-learning? Does it retain? Or does it learn? How does that happen?

Well, yes, it looks at it and then at what's correct for that customer, and that's what the perfect model is. Everything else that's not there, we stop it immediately. Then, we can run code against it that will allow certain things to come through after the fact if we see that this is the correct new environment, what it should look like.

So you're starting at a static perfect world and it's what's different from tomorrow or the next hour. That makes total sense.

Thank you. As we have reached the end of our question and answer session, I will now turn the call back over to Mr. Dellovo for any closing remarks.

Thank you. As always, I want to thank our shareholders for their continued interest and support. Our success throughout fiscal '23 has given us momentum heading into fiscal 2024 as we're already off to a good start with recent AZT client engagements. CSPI has always had a good reputation within the industry. The launch of AZT strengthens this view, and I believe will allow us to engage and sit at the table with Fortune 500 companies. Gary and I look forward to sharing our progress in the fiscal 2024 first quarter in February. Until then, be well, stay safe, and enjoy the holiday season. Thank you.

Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.