CSP Inc.

Stand by, your program is about to begin. Good day everyone and welcome to the CSPI first quarter 2021 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 Michael Poliview with EBC Group. Please go ahead, sir.

Thank you, Priscilla. Hello, everyone, and thank you for joining us to review CSPI's fiscal first quarter ended December 31, 2020. With me on the call today is Victor DeLobo, 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 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 factor section of the annual report of 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 to believe 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, whether as a result of new information, future events, or otherwise after the date they're out. With that, I'll turn the call over to Victor DeLovo, Chief Executive Officer. Victor, please go ahead. Thank you.

Thanks, Michael, and good morning, everyone. Our first quarter performance continued to demonstrate our success navigating the challenging business climate. Specifically, our key objective of migrating to higher margin products and services is delivering improved gross margins, and we remain well positioned to execute our long-term operating strategies. Despite being nearly a year into the pandemic, the entire CSPI team remains focused on achieving the primary objective of transforming our company into a cybersecurity wireless and managed service company. CSPI is a nimble company, a distinct advantage that allowed us to develop exciting new offerings from scratch and ensure order so we can compete with much larger companies. The awards, the accolades, and the industry recognition reflects purposeful approach to develop much needed and valued offerings. I also believe that this nimbleness is inherent to our DNA and is why I believe our culture will allow us to emerge from the pandemic a much stronger company with a full complement of offerings to grow top line and deliver a disproportionate level of profitability. Our managed service has continued to perform well as we added new customers, and the level of interest in our UCAS and RE offerings is encouraging. Total revenue for the quarter was $11.4 million, down year over year, but in line with our internal projections. I also wanted to add that last year's Q1 was the last full quarter prior to the COVID pandemic. Further, the revenue mix in pursuit of higher margin offerings allowed us to report our fifth consecutive quarter of year-over-year gross margin improvement, nearly 5.8 percentage points over fiscal Q1 2020. Given this gross margin performance, I would anticipate a steady improvement in the coming years as the portion of new higher margin offerings contribute more heavily to the top line. As I have repeatedly said on these calls, the pandemic has exposed the weakness and limitations of network infrastructures. The pandemic did not create the issue. It only accelerated and exacerbated the underlying concern of security experts. We are already experiencing record ransomware phishing attacks in China. This past December, 18,000 organizations were potentially impacted by Sunburst-enabled cyberattacks. The Cyber Infrastructure Security Agency classified the attacks that impacted a dozen agencies, three states, and hundreds of commercial organizations as the Advanced Persistent Threat, or APT. For those of you that are not familiar with Once penetrating the organization or agency via Sunburst, hacked to the Orion code, the bad actor actively uses the network to access as many vulnerable systems as possible while using techniques to try and hide their actions. The ARIA Advanced Detection and Response, or ADS, solution was designed to detect such attacks as well as ransomware and malware, which is a constant threat to all organizations. Out-of-the-box ARIA-ADL requires no special configuration and is purpose-built to automatically find and stop all forms of attacks, including APTs. With over 70 threat models preloaded into our solution, it can detect any attacker's action and behaviors, making a highly effective threat detection and response solution. The ARIA-ADL leverages advanced machine learning to pick up these behaviors by monitoring all network data – the security and IT architecture in deployed applications. It uses artificial intelligence to find bad actors, verifies their activities, and correlates their actions before declaring a confirmed threat. To date, REIDR has been targeted at mid-sized organizations. This market has seen budgets heavily impacted by COVID pandemic, restricting budgets and lengthening sales cycles. when these customers most need a solution. In response, we had just released our latest version of ARIA ADR called ARIA Cloud ADR. The ARIA Cloud ADR solution helps in two ways. First, it allows us to sell the solution to companies that are cloud-centric. Second, it creates a lower price point for entry for mid-sized customers' prospects as we can protect their premise, remote workers, as well as their cloud presence. Cybersecurity threats are serious issues and costs organizations valuable time and resources to remedy and keep secure. Midsize customers are finding that ransomware attacks typically cost $100,000 or more to clean up. At the end of the spectrum, several articles place the cost to clean up the Sunburst hack as high as $100 billion. It could take months to fully resolve the issue. So I no longer believe it's a matter of if or when companies will set aside budgets and commit resources to avoid such issues in the future. For the quarter, our technology solution, our TS revenue, was $9.8 million. We continue to receive orders from some of our larger customers. However, the COVID-related impact has caused some budget delays in our current and potential small and midsize customers. Our managed service practice has remained a bright spot and continues to expand as we sign new cloud base and UCAS customers, including in Latin America as customers are seeking to expand their bandwidth to meet the growing demand in the region. The cruise ship industry remains an important market for CSPI. Of course, it's still feeling the effects of the pandemic and they continue to push out the expected return of operations. We have been told the larger vessel may start operations in the second quarter. While gaining access to the ships remain an obstacle, we continue to have regular scheduled communication with the operators. We are maintaining some of the team members so we can move forward quickly when the operators give us the green light. We continue to add new UCAS customers during the fiscal first quarter. We have been increasing the number of virtual product demonstrations, and each quarter the new business opportunity pipeline is higher than the previous quarter. We are confident that we will continue converting these opportunities and capture a piece of the pie, which is expected to grow from $15.8 billion in 2019 to $24.8 billion in 2024. Moving to our high-performance product, or HPP. Revenue for the quarter is $1.6 million. We remain excited about Aria. And earlier this month, we signed a new customer, SPE, a managed IT service provider for the healthcare and telecommunication industries. Selected the Aria micro-HSM solution as a key management server for securing its internal VM environment. For those that are not familiar, the ARIA micro-HSM generates hundreds of encryption keys per minute and gives SPE a powerful, low-cost, zero-footprint, and highly scalable KMS solution. It also enables SPE to expand its managed IT service portfolio to offer its customers critical asset remote encryption services. While we remain well positioned within the leading cable companies and have created other OEM opportunities for ARIA, the pandemic is delaying physical deployment, evaluation, and decisions. I believe the recent hack and the SBE engagement will help raise the awareness of our brand, which will be critically important as we move forward. In addition, Our direct sales team, we continue to vet potential partners for the official channel program, and during the quarter, we added three in the U.S. in EMEA market. We currently have over a dozen partners, and we are speaking to several others to ensure the robust channel program and increase our channel chances for success. To summarize, the markets we serve are enormous opportunities for CSPI, and the recent external factors reinforce our transition to cybersecurity, wireless, and managed service companies. We have a solid base of recurring revenue and a diverse customer base in portfolio products and services that ensure we are positioned for success. Our goal is to increase the pipeline, close customer transactions, and deliver stellar performance. With that, I will now ask Gary to provide a brief overview on our fiscal first quarter financial performance.