Good morning, everybody, and welcome to CSPi's second quarter fiscal year 2023 results 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 phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Michael Polyviou. You may begin.
Thank you, Jenny. Hello, everyone, and thank you for joining us to review CSPi’s fiscal 2023 second quarter results, which ended March 31, 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 their 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 determined as 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 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 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 quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking 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, and CSPi undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, after the date thereof. With that, I'll turn the call over to Victor Dellovo, Chief Executive Officer. Victor, please go ahead.
Thanks, Michael. Good morning, everyone. Today, we reported our third consecutive quarter of solid growth, with revenue up 11% and earnings per share more than doubled from a year ago. The growth is a direct result of our team's successful effort to build both our recurring revenue customer base and a pipeline of million-dollar-plus business opportunities. Despite an increase in competitive operating environment for the customers' budget dollars, the demand for our Services and Solutions results in another quarter and backlog of more than $22 million. We again increased our gross margins from a year ago fiscal second quarter. We are at the midway point of our fiscal year. We believe that we will be able to generate positive results during the third and fourth fiscal quarters. Once again, our Technology Solution business continued to lead the way with sales growth of 9%.
Meanwhile, our high-performance products or our HPP business revenue continued its strong ascent with a growth of 29% compared to a year ago fiscal second quarter. Of particular note for this segment, the ARIA product line is gaining traction with customers around the world. We have continually growing our ARIA customers, and our team has more than doubled the pipeline for this product. We could potentially expand our marketing capabilities for this product line in key international markets through the establishment of a reseller agreement. We have signed an Australian MSP, and we have multiple deals that are underway. Turning to some of the financial results, our fiscal second quarter marks the beginning of the budget year for most of our customers and, therefore, can be a challenging period for our company. Despite this historic seasonality, total revenue for the period grew 13 point...
grew to $13.3 million from $12.0 million in the year ago fiscal second quarter. Our TS business revenue totaled $11.8 million. The segment of our operation continued to be the driver via customers' increased use of our implementation, installation, and training capabilities. Our HPP revenues were $1.5 million compared to $1.1 million in the year-ago fiscal second quarter and were driven by Myricom and ARIA. The ARIA customer base continues to grow, and the pipeline is at an all-time high. During the quarter, we continued to manage the business in a cost-efficient and high return manner. Gross margin percentage over the year-ago period of 35% continued to expand and reach 38% while we gained leverage from our operations and generating net income of $321,000 or $0.07 per common share.
While we continue to invest in our programs to build a long-term growth, we are once again paying a cash dividend to shareholders of $0.04 per share, a $0.01 increase from prior quarter. We continue to manage our balance sheet to yield optimal returns. We continue to achieve record-setting levels of pipeline for most of our product lines. The opportunities ahead of us continue to expand. Our focus over the past few years of offering differentiated value-enhanced solutions for our challenging phase by our customers as well as an increasingly effective go-to-market strategy are the key factors to our growth. At the same time, we continue to invest in our top-notch engineering team and R&D efforts to enhance the existing offering, as well as create new solutions for our customers.
ARIA is an example of the result from our development efforts. We are working to create others in a not-so-distant future. In the cybersecurity space, new threats and challenges are faced by our customers all the time. Our solutions are providing to the adaptable, flexible answers to those threats. While we have strong momentum and our opportunities in the marketplace continue to expand, we do have hurdles to overcome to realize our full potential. The supply chain continues to be a hurdle. Although we have created workarounds for most of these hurdles, gaining acceptance for these solutions often require extensive review by our customers, which delay shipments. Our customers continue to remain loyal to our solutions, often because of our most effective, cost-efficient answers to these needs. At the same time, our team constantly interacts with our customers to keep them abreast of supplier timelines and options.
The supply chain issue continues to improve, but slower than we would like, and it requires constant attention by our team. At the top of the call, I mentioned an increase in competitive operating environments for the client's budget dollars. The situation is being driven by customer needs to maximize the return from their technology investments. Across our product lines, we were able to meet this challenge quite effectively. However, the internal process followed by many of our clients is resulting in an extended timeframe for order decisions, which in return is extending decisions on several major opportunities we are pursuing. Another challenge for us has been the absence of any significant recent revenue from the cruise line industry.
We are beginning to see signs that this drought is starting to end, as we are currently retrofitting one large ship and several other ships that we could begin work on during the next couple quarters. To summarize, we have generated substantial growth during the first half of the fiscal year. If we execute and the market cooperates, we believe the second half of fiscal year performance will be even better. With that, I will now ask Gary to provide a brief overview of the fiscal first quarter financial performance. Gary?
Thanks, Vic. Thanks, Victor. As Victor mentioned in his opening remarks, we had a solid fiscal second quarter. We continue to achieve our operating and financial objectives. We reported revenue of $13.3 million and an 11% increase compared to the year-ago fiscal second quarter, which further validates our growth strategy. We reported gross profit of $5 million or 37.6% of sales, compared to $4.2 million or 35.1% of sales in the year-ago fiscal second quarter. Our Engineering and Development expenses for the fiscal second quarter were $585,000, compared to $717,000 in the year-ago period. As we discussed previously, the increase is primarily due to higher personnel costs, which includes outside consultants.
Our SG&A expenses in Q2 were $3.9 million, compared to $3.5 million in the year-ago quarter due to increased payroll and variable compensation based on higher year-over-year gross profit. We reported net income of $321,000 in the fiscal second quarter, or diluted earnings per share of $0.07 per share, compared to net income of $156,000 or diluted earnings per share of $0.03 for fiscal 2022's second quarter. As Victor mentioned earlier, this represents a more than double increase in our earnings per share. The cash and cash equivalents was $13.3 million as of March 31st, 2023.
The cash and cash equivalents were approximately $10.7 million lower than cash and cash equivalents as compared to the September thirtieth, 2022 level, primarily due to moving $3.5 million of cash to short-term held-to-maturity investments during the second quarter of fiscal 2023, and a large vendor payment made in the second quarter on a large financing customer sale that occurred in the first quarter of fiscal year 2023. In accounts receivable, there is $8.7 million with payment terms which exceed one year. We will be paid $0.6 million and $6.2 million in the third and fourth quarter of the fiscal year.
We believe this is only possible because the prudent management of our resources, which allows us to implement our multi-year growth strategy of transforming into a cybersecurity, wireless, and managed service company. I also want to highlight that the board of directors approved an increase in the quarterly dividend to $0.04 per share, payable on June 13th, 2023 to shareholders record on the close of business on May 25th, 2023. With that, I will turn it over to the operator to take your questions.
Thank you, Gary. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press Star one on your phone keypad now. A confirmation tone will indicate your line is in the queue. You may press Star two if you would like to remove your question from the queue. Anyone using speaker equipment, it may be necessary to pick up your device before pressing the keys. One moment whilst we poll for questions. Thank you. Your first question is coming from Joseph Nerges of Segren Investments. Joseph, your line is live.
Thank you. Good morning, gentlemen. How are you today?
Good morning, Joe.
Good, Joe.
Okay. Well, let me first congratulate you guys on the press release from last week, the announcement of the Miami Dolphins as a new customer, with the, well, I guess it's Acronis. Is that it, the software company that you're?
Mm-hmm
you're tied up with?
Yes
a pretty high profile customer in the area. I assume that doesn't hurt our publicity from the local, the locals that we're trying to recruit outside of them.
Yeah. That's part of the goal is with the announcement. You know, it's a three-year contract with them, we're looking forward to developing a strong relationship over the next couple years.
I noticed in looking up Acronis, they have a pretty dynamic sports program.
Yes
they have quite a few professional sports teams, under contract.
Mm-hmm
if, of course from our market area, from basically Tampa Bay down, there's quite a few sports teams. I'm wondering if we're in contact with any of the other teams in the area.
There's conversations happening.
Okay.
I can't say more than that, there are other things going on.
All right. The cruise industry, there's been some pretty good publicity of late about the, their bookings in the cruise industry. You're saying it hasn't yet, to any great degree, helped us, but we're still talking. Is that it? Is that basically what you're saying?
Well, yeah, they have actually started spending money 'cause we haven't done a ship in a long time. We, you know, we completed one in Spain last week or the week before, I can't remember now. There's 11 more we're talking about. You know, if we get all those, it'll be a good kickstart to hopefully more, you know, after that. They're moving slow, but we are moving, which is good news.
Well, like I said, I've read at least the press releases of late, that their bookings have been pretty strong. I mean, hopefully that indicates...
They're still watching every dollar. They've been hit so hard right now that their budgets are still, I don't think, of what they used to be.
No, I understand. I'm just saying that at least from a positive standpoint, their bookings are-
Yeah
in good shape. Now, from the cash standpoint, you're talking $13.3 cash and cash equivalents. You're also saying that there was $3.5 million you moved to short-term investments.
Mm-hmm
What do we consider short-term? Is it more than six months or?
Six months. Six months.
three months. 90 days.
Oh.
It's 90 days. 6:00 P.M.
90 days or less.
Okay. Anything that's 90 days and above would be in the, in that category of short-term, held-to-maturity investments.
Correct.
Correct.
Okay. From your year end, on your R&D front, did you say it was $585,000 for the quarter? That's what the R&D spending was?
$858.
Oh, $858. Okay.
Yes.
It's higher than I. That's why I.
Mm-hmm
... lower. No, $858 versus $717 last year.
Correct.
Okay. In your year-end letter, you mentioned about 10 ARIA customers, and of course in this press release you now have indicated 14. Am I correct in the assumption? In your press release, you talked about the pipeline and some multimillion dollar potential opportunities. Most of that relies in, falls into the ARIA basket, let's put it that way.
No, they're both TS and ARIA.
Both TS and ARIA. Okay.
Yeah.
Anything new on the NVIDIA front? I mean, I know you've had, you know, contacts with them and some of their customers in the past, and I didn't know if there was any progress or any discussions going on with any of their base.
There is a different department we started talking to recently. Seems promising, on some stuff, but again, in those worlds, things move really, really slow when you're trying to get integrated into a product line of theirs.
At least there are some discussions. It's not dead in the water, let's put it that way.
Oh, no, no. Not at all.
Okay. All right. Well, that's all I have. Thanks a lot. Again, congratulations moving forward and certainly congratulations, I guess really congratulations to me on the dividend. Thanks a lot.
Okay, Joe.
Thank you very much. Your next question is coming from Brett Davidson, who is a Private Investor. Brett, your line is live.
Good morning.
Good morning.
I have a question about the long-term receivable. Is that all with that one large customer from Q4?
There's, at least a couple others too, but primarily with that one customer.
Got it. Do you have a ballpark that you could give me as to when that resolves itself? Or is that gonna be a continuing story over the next couple years where we're gonna continue to add to that?
Well, we.
We're hoping it continues.
Yeah.
Yeah.
Yeah.
We hope it continues. Yeah, you know, We've been doing this with them for probably about four years now, maybe five. As things come up, you know, it keeps us pretty sticky inside the account, so we're hoping it does continue moving forward.
Nice. You know, the terms are agreeable on that, you know, we're capturing the interest rate increases and that's working out to our advantage or?
Yes.
Absolutely.
Absolutely.
The other thing I wanted to get was more of a qualitative. You know, you again talk about the supply chain holding things up, and I know there's that $22 million backlog. You know, absent supply chain, what portion of that do you think you could ship in the next quarter absent supply chain hiccups?
Well, it's all supply chain hiccups really, right? If, you know, the majority is supply chain, sometimes you know, if the order is say $1 million, you might get $800,000 worth of gear right away, and then the other $200,000 could be on backorder, backlog for six months. You can't complete the project until it all comes in. It's unpredictable, and that's where some of the frustrating points are with supply.
This is still equipment like firewalls and routers and?
Yeah. A lot of firewalls, you know, you know, servers. It's a mixture of a little bit of everything.
How much of it would you estimate is, you know, chips for ARIA products? Or is that kind of?
Right now, it's resolved itself at this point.
Oh, nice. That's good to hear. One thing moving in a positive direction. From a hiring perspective, have you guys had, you know, with some of the pressures and some of the other tech industry giants, has that worked to your advantage at all, and, you know, as far as hiring goes?
Florida's a hotbed, right? A lot of people are moving down, it hasn't really. There's people out there, but it's still very competitive on, you know, the amount we have to pay for salaries and bonuses out there to get the top people that are available.
Interesting. All right. Well, that's all I got. Thanks a lot, guys. You guys take care. We'll talk to you next quarter.
You got it.
Okay. Thanks, Brett.
Have a great day.
Thank you very much. Just as a reminder, if anyone still has a question or a comment, please press Star one on your phone keypad now. Okay. It doesn't appear like we have any more questions. I'm gonna hand back over to Victor for any closing remarks.
Thank you. As always, I wanna thank our shareholders for your continued interest and support. We have now reported three consecutive quarters of significant growth. The momentum we are continuing to experience in the current quarter excites us for the remainder of the year. We have a solid revenue conversion, a building pipeline, and a product and service portfolio that are generating favorable gross margins. Gary and I look forward to sharing our progress in fiscal 2023 third quarter operating results in August. Until then, be well, stay safe. Thank you.
Thank you.
Thank you very much. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.