Good day, everyone, and welcome to the CSPi Fiscal 2020 Second Quarter Conference call. [Operator Instructions] Please note this call is being recorded. [Operator Instructions] And it's now my pleasure to turn the conference over to Mr. Michael Polyviou with the EVC Group. Please go ahead, sir.

Thank you, Tony. Hello, everyone, and thank you for joining us to review CSPi's fiscal second quarter ended March 31, 2020 financial and operating results. With me on the call today is Victor Dellovo, CSPi's Chief Executive Officer; and Gary Levine, CSPi's Chief Financial Officer. Before we begin, I'd like to remind you that during today's call, we will take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to statements that may be deemed to be forward-looking under the act. The company cautions that numerous factors that could cause actual results to differ materially from forward-looking statements made by the company. Such risks include general economic conditions, market factors, competitive factors and pricing pressures and others described in the company's filings with the Securities and Exchange Commission. Please refer to the section on forward-looking statements included in the company's filings with the SEC. After Victor and Gary conclude their opening remarks, we will open the call for questions. And with that, I'll turn the call over to Victor Dellovo, Chief Executive Officer. Vic, please go ahead.

Thanks, Michael, and good morning, everyone. We appreciate your interest and support of CSPi. Before we begin, I want to acknowledge the impact of the coronavirus pandemic and express our heartfelt concern to those who have been affected. The safety of our employees, customers, partners is our foremost concern, and we continue to take every precaution to ensure their well-being during this difficult time. To minimize the business disruption, we quickly adjusted our operations to comply with local, federal requirements, and currently, over 90% of the team is working remotely. Importantly, we have been able to build our contact with customers as well as potential customers via remote methods. Despite the operating restrictions brought on by regulations and guidelines to the -- to contain corona 19, we made solid progress during the quarter, doubled our sales in our service segment and increased gross margins. Total revenue for the fiscal second quarter was $16.1 million compared to $16.4 million. However, notwithstanding COVID-19, I'm quite certain that Q2 revenue would have surpassed the year ago level if business were permitted to operate normally. Nevertheless, our focus on higher-margin products allowed us to report improved gross margins despite the lower year-over-year revenue. Despite the current business disruptions, I also wanted to reaffirm the progress we are continuing to experience, a growing interest in ARIA in Unified-Communications-as-a-Service business as we continue to transition to cybersecurity, wireless and managed service company. We are currently conducting an average of 5 new product demonstrations a week, and I can say without hesitation that interest in our new product lines and services is at the highest level. More importantly, we are engaging with all our prospects. It validates the strength of our offerings. And as of today, we have numerous proof of concepts to perform with customers. However,…

Thanks, Vic. As Vic mentioned in his opening remarks, our fiscal second quarter revenue was $16.1 million compared to $16.4 million in the year ago quarter. Our gross profit was $4.5 million, up approximately 20% compared to last year's Q2 gross margin of $3.7 million, even on a slightly lower revenue base. Our gross margin of 27.9% improved several hundred basis points compared to the year ago gross margin of 22.9% due to the favorable mix of higher-margin business. As expected, our fiscal second quarter engineering and development expenses continued to trend lower at $716,000 compared to $781,000 a year ago due to a reduction in contract labor required last year to help in building out the foundation of the ARIA software platform and a recovery of a consulting expense where the services were not completed. Our SG&A expenses in Q2 were $3.9 million, which is slightly -- which increased slightly compared to the $3.7 million in last year's fiscal Q2 due to bad debt reserve, additional staff at TS and additional sales personnel for the ARIA, which we continue to launch in this fiscal year. We had income before taxes of $437,000 in Q2 compared to a loss of $761,000 in the prior year. We had a significant foreign exchange gain from our cash position in euros and U.S. dollars in the U.K. During the quarter, we had income tax expense of $1.2 million, primarily from recording a valuation allowance against our deferred tax asset. We concluded that a portion of our deferred tax asset will not be realized considering recent financial results, the coronavirus pandemic and the results and economic fallout. The current quarter and year-to-date income tax expense is net of tax benefits anticipated from the carryback of current and prior year federal net operating losses as…

[Operator Instructions] And we can take our first question from Joseph Nerges with Segren Investments. Joseph Nerges;Segren Investments;Managing Director: Well, I guess we're taking a little bit of a hit here with this dividend cut on the stock, but let me get some clarification here. Did you say -- what's the employee count that you just mentioned, Gary, right now?

116. Joseph Nerges;Segren Investments;Managing Director: 116 employees?

Right, yes. Joseph Nerges;Segren Investments;Managing Director: Okay. Is that pretty much what we had last quarter or last year? I thought we had a little bit more, but...

Yes. It's been -- no, it's consistent within what we've had over the last year. I mean, we had a much higher when we had Germany. Joseph Nerges;Segren Investments;Managing Director: Okay. All right. Obviously, absence of Germany. Now on the capturing back of income tax expenses, what -- under the CARES Act, are we going to be able to capture some of that in this third quarter? Or am I missing that? I'm trying to get the accounts receivable here.

No. It's already been -- I mean we've done a preliminary calculation on it, and it's in the numbers that we reported. So that benefit is offsetting with the write-off of the deferred tax. Joseph Nerges;Segren Investments;Managing Director: Okay. So that was reported in this quarter you just reported now?

Correct, yes. You had to show all the effect of the CARES Act within this quarter. Joseph Nerges;Segren Investments;Managing Director: Okay. On the -- I'm still trying to calculate this $2,180,000 or $2,160,000 we're getting from the CARES Act, that -- approximately, that's what is the number is, right? $2,180,000, I guess.

Yes. Joseph Nerges;Segren Investments;Managing Director: Now will some of the employee salaries be subtracted on that via the -- or you subtract that from the loan, let's put it that way in what would incorporated in this current quarter? Or am I wrong there, too? Or has that already been reflected?

It will be -- the effect of that will -- what happens is at the end of the period, they have 60 days to review it and get back to you with what's going to be -- you're not going to be -- you get forgiveness of that. Joseph Nerges;Segren Investments;Managing Director: Okay. So that -- you're saying that 60 days will be after -- is there like an age period under the CARES Act?

After the completion that goes in the middle of June, it was probably going to be -- we probably won't get an accounting until the fourth quarter. Joseph Nerges;Segren Investments;Managing Director: Fourth quarter. All right. So any end result won't be probably on year-end report, let's put it that way, most likely.

Right. Right. Joseph Nerges;Segren Investments;Managing Director: Let's get back to some other quick questions here. Did you say that the cable -- did Victor say that the cable customer is still -- the status on that is still pending on potential cable customer? Has that been...

Correct, yes. It's just been pushed out just due to -- they're concentrating on keeping the internal customer service going, and they had -- everything's kind of on hold temporarily. I'm hoping things pick back up in June with them. Joseph Nerges;Segren Investments;Managing Director: Okay. Well, from the -- from what I understand, the R&D group out of Denver is rolling out -- they're working on the 10G rollout. So I'm assuming, if I'm correct, a lot of this may revolve about increasing their wireless product line down the road. Am I correct in that? Or am I fishing?

You're fishing on that one. Yes, what we're doing with them, it's an internal project, which has to -- it stays internal. But yes, everything that we're working with them has just been -- just tabled for a month or 2, but nothing has stopped. The interest is still there. Joseph Nerges;Segren Investments;Managing Director: Yes. But you indicated in the last conference call that the other cable companies, some of what you're doing, let's say customer A is applicable to other customers within this group. And then we had some interest or at least you were talking to some of the other...

We're still talking to all of them. Joseph Nerges;Segren Investments;Managing Director: Okay. On your -- on the most recent area, the ADR application. That's quite a dynamic product if it works as advertised. As I understand, listening to the webinar, they -- in a lot of cases, they can automatically correct the problems that may be involved with hacking and what's going -- this is -- without even any intervention from their security breach.

That's correct. Right. When you -- yes, with the ways ARIA is set up, it would -- you set your policies and you could literally be sleeping at night and it would make all those changes automatically, and then you could review them the next day if you don't have a full 24/7 SOC monitoring it. You could come in the next day and see all the changes and easily undo them if there was anything that you wanted to take a step back to normal after inspection. But yes, that's the magic sauce that I think separates us is that AI built in that can do this seamlessly while not monitoring it 24/7. So that's where the interest in -- when we show them what it can do, people are very, very interested in it, and things are going really well. Game-changing stuff right now. Joseph Nerges;Segren Investments;Managing Director: What -- when you refer to it, and I'll just let you go on this, I'm not going to prolong this, but when you refer to 5 new product demos per week, are you referring to some of it as ARIA, some of it connected with the UCaaS or a combination of both?

No, that was just ADR, what I was talking about there. It has nothing to do with the additional UCaaS demos and everything else that we're doing. That's strictly ADR. Joseph Nerges;Segren Investments;Managing Director: Okay, that's great. But what you're saying is you would need to get access to their facilities for proof of concept, is that -- in other words, you're -- we need the people on site to at least help them integrate it.

Correct. We need to put the ARIA product in line. If they want -- if you don't put it in line, ARIA inside their network, it can't do the automatic fixing and adjustments in blocking. So it could also just monitor and then they could feed that information to someone and they can make the manual changes. But if you want a full-line POC, which they do because they -- of course, they want to see it working. We need to get product in line and set it up for them. So we're scheduling things right now for June, if we can get in. And then if it has to move out, then we'll move it out. But right now, we are scheduling the POCs for June. Joseph Nerges;Segren Investments;Managing Director: Okay. And I'm assuming the time it takes to incorporate that would be based on the size of the customer?

That's correct. Joseph Nerges;Segren Investments;Managing Director: Obviously, the larger, more complex would be more work, let's put it that from our standpoint.

That's right. Joseph Nerges;Segren Investments;Managing Director: All right. I appreciate -- I mean we seem to have the right products. Unfortunately, the pandemic is holding us back in many areas.

That's correct.

[Operator Instructions] And it appears we have no further questions at this time. I'll turn the conference back over to Mr. Dellovo for any closing comments.

As always, I want to thank our shareholders for their continued interest and support. Despite the COVID-19 pandemic, our core business remains strong, and UCaaS and ARIA offerings point to a bright future. Gary and I look forward to sharing our progress with you on fiscal Q3 conference call in August. Thank you.

Thank you.

Thank you. This does conclude today's conference. You may disconnect, and have a great day.