CSP Inc.

Good day, everyone, and welcome to the CSPI Fiscal 2020 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions. Please note that this call is being recorded. And now, it is my pleasure to turn the conference over to Mr. Doug Sherk with EVC Group. Please go ahead, sir.

Thank you, Operator. Hello, everyone, and thank you for joining us to review CSP Inc.'s fiscal third quarter ended June 30, 2020. 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 CSP Inc.'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, 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 a number of 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 risk and uncertainties discussed in the risk factors sections of the annual report on Form 10-K and the quarterly report 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 the future events. All forward-looking statements are qualified in their entirety by this cautionary statement, and CSP Inc. undertakes no obligation to publicly revise or update any forward-looking statements, which is a result of due information, future events, or otherwise after the date thereof. With that, I'll turn the call over to Victor Dellovo, Chief Executive Officer.

Thank you and good morning, everyone. Before we begin, I want to acknowledge the impact of the coronavirus pandemic and express our heartfelt concern to those who have been affected. Since we last talked with you in May, our team has continued to adjust how we operate the business to maximize our opportunities in a manner that is safe for both our employees and our customers. We have been able to maintain most of our workforce executing for our clients, and more than 90% of the team is working remotely. We are now several months into the new normal, and despite limiting our ability to visit our customers and potential customers, we continue to build our pipeline in all lines of our business. Total revenue for the fiscal third quarter was $13.5 million compared to $21.6 million we reported in the same period of fiscal 2019. While the year-over-year revenue decline was primarily related to COVID-19 pandemic, A decision to also transition our business to higher margin products and services enabled us to significantly improve our gross margin. I believe this achievement demonstrates the soundness of our execution of our profitable growth plan. Further, during this transition, our prospects remain quite high. And if nothing else, the suddenness of the COVID-19 pandemic and unprecedented of remote working environments is helping to highlight network vulnerabilities. Businesses both large and small remain exposed to increased threats, and there have been several well-publicized ransomware attacks. I believe this fear, in addition to providing a secure remote working environment, is a growing concern for many businesses. It is critical that the businesses have a partner that understands the complex challenges. We are positioning CSPI to be that partner as our newest solutions are in our Unified Communication as a Service or UCAS team ready made for today's critical network issues. For the quarter, our technology solution or TS revenue was 11.9 million. While the TS division was impacted by COVID-19, we were able to generate most of our revenue from our large customers. Our managed service practice, or MSP, continues to perform well as we sign new customers during the quarter, which include cloud business and UCaaS. Importantly, we have not lost a single customer as they value the service we are providing. This stickiness demonstrates our importance to our customers even during these unprecedented times. I believe that the three lines of recurring revenue business we create continues to bring stability to CSPI. Separately, the cruise ship industry remains one of the most COVID-19 impacted industries. When we spoke in May, many operators were looking to resume cruise during the summer months. However, in June, the Cruise Lines International Association, or CLIA, announced that the association ocean-going cruise line members will voluntarily extend the suspension of the cruise operations from the U.S. ports until mid-September 2020. However, some cruise operators have will plan to restart in the EU ports in the coming weeks. While the continued travel restrictions hamper the ability to gain access to the ships, we continue to communicate with the operators every other week, and we are prepared to move on a moment's notice. On the positive side, these upgrades need to occur, and the operators have already purchased the equipment, so we would expect these ships to be prioritized when business resumes. As we have consistently reported over the past few quarters, our Microsoft practice continues to perform well, and this latest quarter was no exception. We are in a month through Q4, so I'm reaffirming our belief that we will achieve a greater growth rate for the business compared to a four-year growth rate of 140% we achieved in 2019. regarding our UCAS offering an all-in-one service for hard and soft phones, including 24 by 7 security and technical support with the redundant data centers, both in Florida and Texas. As a reminder, UCAS market size is expected to grow from 15.8 billion in 2019 to 24.8 billion by 2024, being driven by growing trends towards mobility and bring your own device or BYOD to the workplace. During the quarter, we continued to have success as we added new customers and expanded sites at our current customers. All while continuing to increase the number of virtual product demonstrations we are performing on a weekly basis. The new business pipeline is promising, and the team is engaged with prospects and is maintaining constant communication. Now I will move to our high-performance products, or HPP division. Revenue for the quarter was $1.6 million, in line with our estimates, and reflects revenue from our legacy business, being offset by the expected decline in the AmeriCom business. ARIA, our award-winning next-generation cybersecurity platform that helps organizations protect themselves from harmful, hidden attacks without human intervention, is continuing to garner tremendous interest and customer success as we recently completed an installation for an international customer. Further, we continue to be well positioned within a leading cable company and other OEMs opportunities for Aria. I believe the testimony along with the industry acknowledgement and robust lead flow we are generating from virtual trade shows will drive future sales in the HPP division. Additionally, we now have six partners for our official channel program and we are speaking with several of us to ensure a robust channel program. To summarize, the CSPI team is performing well and remain focused during the unprecedented times. We have made and will continue to make necessary adjustments to our operations to ensure business execution. Specifically, our new ARIA and UCAS offerings are generating the expected interest as we sign up new customers and broadening our pipeline. We have a diverse customer base, both large and small, and this breadth will allow us to successfully navigate the near-term uncertainty. We are excited about our long-term growth prospects. With that, I will now ask Gary to provide a brief overview on the fiscal third quarter financial performance.