Good day, everyone, and welcome to today's CSPi Third Quarter Fiscal Earnings Conference Call. Please note that today's call is being recorded. It is now my pleasure to turn the conference over to Michael Polyviou. Please proceed.

Thank you, Keith. Hello, everyone, and thank you for joining us to review CSPi's fiscal third quarter ended June 30, 2021. 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 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 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. 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 by CSPi, 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. Vic, please go ahead.

Thanks, Michael, and good morning, everyone. For the first time since the emergence of the COVID-19 pandemic, our sales and engineering teams were fully engaged as we achieved several positive developments. For example, the performance of the Technology Solutions division had another stellar quarter and had one of its best quarters ever. Had it not been for a well-documented supply chain issue delaying certain sizable orders, we would have likely reported considerably higher revenue, which would have given us a year-over-year increase in our total company revenue. Additionally, we grew service revenue, including a net revenue of third-party maintenance by 25% year-over-year as larger and newer customers continued their purchasing habits while simultaneously converting smaller customers to multiyear MSP agreements. Our continued migration to higher-margin products and services enabled us to report our seventh consecutive quarter of year-over-year gross margin growth. Today, these high-margin offerings represent approximately 25% of our revenue compared with 21% in the year-ago third quarter. We continue to believe we will emerge from this pandemic a stronger and more formidable company with a full complement of products and services to grow on the top and bottom lines. In fact, I believe the recent industry accolades across the two businesses will be contributing factors to our success. In May, CRN, a brand of The Channel Company, named CSPi Tech to its 2021 Managed Service Provider 500 list in the Security 100 category. The list, which is announced annually, recognized the leading North American solution providers that have demonstrated innovative and forward-thinking approaches to managed services. Also in May, two ARIA SDS applications for automated cyberattack detection and response won awards from Cyber Defense Magazine, the industry's leading electronic information security magazine. The first is for our award-winning ARIA ADR solution, which automatically finds and stops all types of threats, including cybercriminals launching zero-day attacks, the moment they become active on the network; and most importantly, before harm occurs. In a single platform, organizations gain AI-driven security operation centers without the people and typical equipment costs. As a result, the ARIA ADR solution stops attacks 10 times faster and at a fraction of the cost. Unlike other security tools, ARIA ADR provides full threat service coverage for on-premise infrastructure data centers, remote devices, and cloud environments, and can be operated anywhere by IT resources with little or no cybersecurity training. The second award, working in conjunction with the ADR solution, is the ARIA Packet Intelligence application, which enables complete visibility into an organization's network traffic, including typically unmonitored lateral paths. It watches all communications generating analytic data on network traffic, including typical or monitored lateral performance. The customers that have deployed ARIA ADR or used security tools such as SIEM are leveraging this enriched data to stop network-born threats. For the quarter, our TS revenue was $12.8 million, a phenomenal achievement as the team continues to achieve our objectives. This result reflects another solid quarter as our managed service practice continues to perform well. We also signed a new multimillion-dollar customer with potential up to 10,000-plus users, further positioning us for continued positive performance in this business. Of note, we did not record any revenue from this contract during Q3. It will commence in the fiscal fourth quarter and run into 2022. This underscores our optimism and demonstrates the progress we are making, penetrating the market for cloud-based solutions. In perhaps a sign of further economic improvements, we closed a piece of business in Mexico with a new customer that we had been pursuing for well over a year. Despite a tighter market for skilled engineers to date, we have not had any issues recruiting engineers to CSPi because we offer them a chance to succeed and make a difference. They want to be part of a winning culture. With the amount of business we have been winning and could conceivably win over the next coming months, I believe this will be a competitive differentiator as we compete with other companies for these engineers. Now let me pivot to the cruise line. As you are aware, the industry has been adversely affected by the pandemic, and it directly impacted our ability to gain access to cruise ships and complete our tasks. However, the Q3 activity level was encouraging, and the outlook today is far better than a year ago. Our pipeline has increased, which validates our decision to maintain our staffing levels throughout the deal as it would enable us to scale quickly when the need arises. However, because this remains a fluid situation, it requires careful monitoring. We will adjust assignments, if necessary, to ensure the team's safety. We also continued to expand our UCaaS revenue, mostly from smaller transactions, as larger deals are taking longer to close due to the longer sales cycle and timing of customers' existing contracts expiring. However, I believe it's only a matter of time before we land a big customer because we have a superior and award-winning product, which allows us to cut out a niche in this multibillion-dollar market opportunity. I am pleased with the performance of TS. This was offset by a slower-than-expected performance of the High-Performance Products, or HPP division. Revenue for the quarter was $1 million as Myricom performed as expected, while royalty revenue related to the E-2D program did not materialize as we had anticipated, as we now expect to record royalty revenue in the current fiscal fourth quarter. However, our outlook for HPP is considerable because the activity level of our award-winning ARIA platform is high. It continues to garner tremendous interest during the quarter. It gives us greater comfort as we move forward as it will surely become a star award for the HPP business and contribute heavily to the success of CSPi. As you know, we have spent considerable resources developing ARIA, and I believe the time we devoted to refining our messaging and educating the market is yielding positive momentum. For example, we currently have over three dozen opportunities in the sales funnel, including several from our TS-based clients, with over 30% of these in the later or advanced negotiating stages. Let me also share with you an important development during the quarter. We have fine-tuned the process for onboarding our ARIA ADR customers between HPP and TS MSP. The recurring monthly revenue from this will commence in the current fiscal fourth quarter. Moreover, it will represent the integration of ARIA ADR with the MSP business, and with several of the pipeline leads originating from the TS business, it clearly demonstrates the synergy possibilities of the TS and HPP business. Additionally, during Q2, we signed three additional ARIA ADR customers, two of which we plan to install this quarter, and the third during fiscal Q1 of 2022, with recurring revenue commencing in the first and second quarters of fiscal 2022, respectively. As a reminder, each of these are three-year arrangements generating monthly revenues. So it's just the tip of the iceberg as we expect to scale quite rapidly and could achieve annualized revenue in the millions. This validates everything we have done up to this point and strengthens our conviction that ARIA will be a game changer and will be a dynamic growth driver for the HPP business. Broadly speaking, it gives CSPi two best-in-breed businesses with superior products and services. To summarize, we continue to capitalize on business opportunities, strengthening our long-term growth ambitions while managing the issues posed by COVID-19, supply chain, and talent acquisition. I believe we have a unique set of products and services that continue to propel the TS business while patiently waiting for the HPP business to begin contributing in the coming future. I believe each of these businesses, when performing to the best of their abilities, provide us with significant revenue and gross margin opportunities, complemented by a balance sheet that gives us the resources to pursue our plans for the foreseeable future.

Thanks, Victor. As Victor mentioned in his opening remarks, our third quarter revenue was $13.7 million. While the year-over-year had a slight decline, we still experienced limitations imposed by COVID-19, especially with customer visits and interaction. We still managed to report a gross profit of $4.2 million or 30.8% of sales compared with $4.2 million or 30.6% of sales in the year-ago fiscal third quarter. I also want to point out that our cost of sales for service increased 38% in this year's Q3 as we had added staff to our Network Operations Center. We have achieved year-over-year gross margin improvement through the pandemic as we continue to sell a mix of higher-margin service business. Our near and short-term goal is to maintain an annual gross margin in the mid- to high 20s, and moving this up as the higher-margin products become larger contributors to the top line. Our engineering and development expenses for the fiscal third quarter were $700,000 compared to $693,000 in the year-ago period. The increase is due to a higher headcount in engineering, where we filled open positions. As Victor mentioned earlier, this is a tight labor market for qualified engineers, so we may see increased expenses in the coming quarters as we compete for talent. Our SG&A expenses in Q3 were $3.9 million, essentially flat with the year-ago Q3. We reported a net loss of $423,000 in the third quarter or $0.10 per share compared with a net loss of $110,000 or $0.05 per share for the third quarter of fiscal 2020. We ended the third quarter with cash and cash equivalents of $19.7 million as of June 30, 2021, a slight increase compared to cash and cash equivalents on September 30, 2020. We believe that the measures we implemented during fiscal 2020, including the suspension of our quarterly dividend, stopping our stock buyback program, and in addition to the PPP loan proceeds, enabled us to preserve our cash and maintain a robust balance sheet throughout the pandemic. We will maintain a similar prudent cash preservation posture for the foreseeable future or until such time that the economy and businesses resume normal operations.

And we'll take a question from Joseph Nerges with Segren Investments.

Real quick question, off the top of your statements, Victor, that is you mentioned that the supply chain issues were a factor in this quarter. Has that been resolved to an extent going into this quarter, or are we still having a slow supply chain problem?

Yes, we are still experiencing a slow supply chain. Some of the major brands we represent are taking 12 to 15 weeks for certain products. We are hopeful that the deals we finalized in Q2 can be shipped in Q3, and the deals we are closing in Q3 will create an ongoing backlog. That's how we're approaching the situation right now.

So essentially, the volume that you would have had last quarter is falling into the current quarter than in the supply?

Yes, correct.

Okay. You said there's no E-2D revenue in the third quarter, and you're expecting some E-2D royalty revenue possibly in the fourth quarter. Is that it?

Correct.

Correct.

On the points you made on your presentation about transferring the ADR product line to the Technology Solutions. I guess that's a vital ADR service that you're offering. Doesn't that open up a whole series of additional potential customers in the managed security service providers, that's exactly what we're doing in Florida. Is it not? We're acting as a managed security service provider for the customers utilizing our earlier software.

Correct. Yes, yes. And the customers that we've closed this quarter have signed contracts for both MSP to manage the rest of their infrastructure plus the managed ADR. So there are multiple contracts that were signed for each of the customers. Yes.

I understand that, but the question is whether we are also reaching out to other managed security service providers across the country that could be using the service, similar to what we're doing in Florida.

We're in discussions with some of them. However, there’s an investment involved, as they need personnel to monitor it. It's not just about them buying the product and us assisting with the setup; they also require skilled staff to oversee the operations. This process is taking longer because we are advising them on establishing a new business unit, either in California or elsewhere in the country. Ultimately, this is a decision that the CEO and CFO must make regarding the launch of a new division within their existing company.

So essentially, they're not doing that currently.

They could be monitoring the firewalls, but they may not have a SIEM that they're giving the customer as an offering.

Okay. One point you've made several times on previous calls is the three areas that we're emphasizing going forward: cybersecurity, particularly with ARIA; managed services, which we're performing well with in Florida; and the third area is wireless, which you've highlighted multiple times. What do you see in that area that gives you hope for the future?

Well, that's been a big part of what we've done for a long time to where we're one of Aruba's biggest Southeast partners. We have the talent and expertise to help different companies of different sizes. We sell not only the product but also the services to install it. We've also been offering a managed service wireless offering so that the customer doesn't have to buy the product; they just basically rent the product with the services. We started opening that as an offering inside our MSP. We probably have, I'd say, half a dozen accounts already of various sizes to where they don't want to have to worry about any of the wireless getting it up and running and making sure the security on the wireless and all that; we take care of all that for them. We've been doing wireless for years, right, over a decade, but now we've brought that piece of it into the MSP offering also.

And is our engineering expertise allowing us to advance because we're buying the product from some of our suppliers?

Correct.

But the engineering that we're putting into, I assume, separates us to some extent from some of our competitors.

Yes. There is a product that we represent, among a couple of others, that serves as a Network Access Control (NAC). It enables users to connect and disconnect from various networks of different companies. We possess engineering expertise in this area and are collaborating with several large hospitals and major financial institutions, whose names I can't disclose, but you would recognize them. We are establishing the NAC for them, implementing security policies as well as managing the wireless aspect. While the wireless component is relatively straightforward, the challenge lies in managing access to the wireless network and ensuring that only those with the appropriate credentials can connect to specific parts of the network, which is our area of strength. We are also engaged in engineering work across various organizations, including school systems, focusing on NAC and wireless technologies.

Well, it sounds like to me, it's just a matter of time for some of these proposals that are out there; some of them have got to close. And the more you have out there, the possibilities of, let's put it this way, HPP do a much, much more. Could you...

Yes. The pipeline is steadily growing, and we are successfully closing deals to establish referenceable accounts, which are crucial since we often get asked if we are recognized by Gartner or Forrester. Currently, we are not. However, we lacked references until recently, which was a significant challenge. It’s difficult to assert that your product is excellent when no one is willing to be the first to try it. We’ve gained some trust from customers on the MSP side who have demoed our product and conducted proof of concept, and they have moved forward with purchases. Now, we are developing our list of referenceable accounts to share with all the companies we are engaging with.

Okay. Great. That's all from my side. But it sounds like you're doing fine. It's just a matter of getting some more volume, and hopefully, not too distant future.

That's it. Yes.

Thanks, Joe.

It appears we have no further questions. I will now hand it back to Victor Dellovo for any additional or closing remarks.

Thank you. As always, I want to thank our stakeholders. Gary and I look forward to sharing our progress in the fiscal fourth quarter and full year 2021 operating results in December. Until then, be well and stay safe.

Thank you.

This will conclude today's program. Thanks for your participation. You may now disconnect.