CSP Inc.

Please stand by, your program is about to begin. Good day and welcome to the CSPI Fiscal Q1 2022 Earnings Conference Call. Currently, all phone lines are in a listen-only mode. Later, there will be an opportunity to ask questions during a question-answer session. You may register to ask a question at any time by pressing the star, then 1, on your telephone keypad. Please be advised, today's program may be recorded. It is now my pleasure to turn the program over to Michael Polivio. You may begin, sir.

Thank you, Aaron. Hello, everyone, and thank you for joining us to review CSPI's fiscal first quarter ended December 31, 2021. 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'll 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 term 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 and risks and other influences, many of which are beyond the company's control and may influence the accuracy of the statements and 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 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 DeLobo, Chief Executive Officer. Vic, please go ahead.

Thanks, Michael, and good morning, everyone. We reported a solid fiscal first quarter performance as we achieved many of our objectives. For example, revenue of $12.4 million increased 9% year-over-year and 24% sequentially. Service revenue grew 23% year-over-year. During the quarter, we continue to manage through a variety of issues during the quarter. Some of the key factors continues to be the impact of COVID-19 Omicron variant. We had multiple internal COVID outbreaks during the quarter, which slowed us down from completing certain projects. Then, of course, the supply chain issue, which has delayed many customer orders and with our backlog increasing to over 15 million. Under a normal environment, we would have had a significant profit for the quarter. We also had to give our employees raises to keep the turnover at a minimum. The Florida job market is one of the hottest in the U.S., so there are many options for our employees. We also had recruiting fees in the tune of $80,000 for the quarter. With the labor market being so tight, we had to hire multiple recruiting companies to help backfill some of the open positions and as well as new positions because of the growth in the MSP. division. Despite the challenges, we were able to generate growth during the quarter as well as build our backlog. Our performance during the first quarter resulted from our continued high engagement with our customers and suppliers to proactively resolve and work through issues. Our team is quite proud that today we have not lost a single order in the backlog. Additionally, being nimbler than our larger peers, we have been able to quickly shift gears to refocus our resources to the services side of the business, which has not been nearly as impacted by as a plain chain issues and have captured meaningful revenue opportunities during this period of certainty. A primary goal of migrating to higher margin products and services continues to be achieved as we reported solid gross margins of 29.1%. Similar level compared to a year ago fiscal first quarter. by heading into a period of tougher year-over-year comparison and facing inflationary pressures with our costs. We do believe at this point we should be able to make further progress with our overall gross margin as compared to Q1 as the year progresses. Our technology solution or TS business generated revenue of $11.3 million in the fiscal first quarter. An outstanding result that exceeded our plan. Our managed service practice, or MSP, remains a bright spot because business is a challenge to retain or attract internal talent. I don't expect this dynamic to change much in the coming year, so we will continue to dedicate the necessary resources to capture our share of this market to build our portfolio of service contract customers. Moving on to the cruise line business, the team is currently deployed and working It is progressing on four ships, as I mentioned in Q4 call. While the Omicron variant has lowered the operator's optimism regarding the timing of additional retrofits, there is another set of ships that could be awarded later this quarter or early Q3. As a reminder, this business provides CSPI with an attractive business opportunity, and we are decidedly focused on winning additional business as our fiscal year progresses. Regarding UCAS, we added several new customers during the quarter, and I'm encouraged with our progress. We do face continuing obstacles that are hindering our ability to maximize the revenue potential of this offering. Name recognition is always an issue, and we also have a smaller sales force than compared to our larger pairs. Regarding the high-performance product, our HPP division, we reported revenue of $1.1 million as the AmeriCom business performed better than expected. This growth was offset by lower than expected royalty revenue related to the E2D program. Approximately 50% of the royalty expected revenue was recorded in Q1, with the remaining balance now expected to be recorded in the second half of fiscal 2022. While ARIA remains the primary growth engine for this business segment, in December we announced the availability of the Miracom ArcC TXO network interface adapter designed to act as a secure unidirectional network bridge. This product has already been deployed in organizations including a large public cloud operator and in government applications requiring a network gateway that allows one-way data transfer between classified and unclassified networks. While we don't expect this product to significantly change the upward trajectory of Miracom business, it does demonstrate our ability to respond to an increased demand from our OEM and large customers to create a one-way data path. With regards to ARIA, the emergence of Omicron in the timing of holidays slowed down the momentum as we had experienced earlier in the quarter. However, we did manage to close a few MDR customers, and the revenue contributed from these commenced in the current fiscal Q2. As of today, we continue to grow our ADR customers, generating recurring monthly revenue the team is working hard to sign new contracts the orders in the backlog along with deals we are pursuing are sizable and we will dramatically transform the revenue landscape for the hpp business although the timing to bring these opportunities across the finish line is unpredictable at this point to summarize we increase our backlog demonstrating the heightened interest for our products and services, and also due to the supply chain issue, which has limited our sales growth. We continue to implement and execute on the initiatives aimed to improve a near-term performance, such as focusing on service business while strengthening our long-term interest as we continue to make progress with the UCAS and ARIA, but at a slower pace than we would like. Gary and his financial team has excelled over the past two years, and the prudent expense management that have implemented allowed us to maintain our resources to execute a multi-year growth strategy of transforming to a cybersecurity wireless and managed service company. With that, I will now ask Gary to provide a brief overview on the fiscal first quarter financial performance. Gary.