Good day, everyone, and welcome to today's CSP Incorporated Third Quarter Fiscal 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note today’s call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Gary Levine, Chief Financial Officer. Please go ahead, sir.

Yes, thank you. Good afternoon everyone and thank you for joining us. With me on the call today is Victor Dellovo, CSP's Chief Executive 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 could cause actual results to differ materially from forward-looking statements made by the company. Such risk includes general economic conditions, market factors, competitive factors and pricing pressures and others described in the company's filings with the SEC. Please refer to the section on forward-looking statements included in the company's filings with the Securities and Exchange Commission. During today's call, Victor will provide an update on our business segments and on our strategic progress. And then I'll discuss our third quarter financials then we'll open it up to your questions. Now, let me turn the call over to Victor.

Thanks, Gary. We performed well on both top and bottom lines in the third quarter as we continue to make excellent progress against our operational and strategic initiatives. Sales were up 21% in the quarter and we reported EPS of $0.32 versus $0.07 a year ago. In the High Performance products division, which includes Myricom Network Adapter products, we continue to perform above our expectations and we have fully launched our new ARC Series E Class network adapters for the automated trading market. In the Technology Solutions division, our managed service pipeline is strong, recurring revenue is growing and our cross-selling strategy between locations and divisions is advancing. With that I will get right into our segment review starting with the High Performance products division. High Performance products division had a strong quarter with revenue increasing approximately 43% year-over-year. We have received royalty revenues for three E-2D planes and additional revenue from our large product shipment to support future plane build. This compares with E-2D royalty revenues for three planes in the comparable quarter a year ago as well. Looking ahead, our expectation is to receive royalties from one plane in Q4 in line with our expectations for the year. In addition, we have received revenue from a large international customer. Myricom's legacy product line continues to perform very well. We had expected decline in revenue from these products, but instead we have seen steady sales. However, the real long-term strategy opportunity for Myricom product lines with that next generation of products such as the ARC Series E Class, which have the potential to expand the HPP’s market reach and be the primary growth driver. During the quarter, we fully launched our next-generation FPGA network adapter products branded to Myricom ARC Series E Class for the financial trading market. The…

Thank you, Victor. Revenues increased 21% to $26.9 million from $22.3 million a year ago. Our total cost of sales for Q3 was $19.7 million, up 15.8% from the prior year. Gross profit for the quarter was $7.2 million compared to $5.3 million a year ago. Gross margins increased to 26.8% from 23.6% in the prior year as a result of volume leverage. Third quarter engineering and development expenses increased to $779,000 from $626,000 a year ago. Primarily from the addition of five engineers since last year. As a percentage of sales Q3 engineering and development expenses were 2.9% compared to 2.8% last year. This is below our expected range of between 3.5% and 4% of sales due to the increased sales volume during the quarter. SG&A expenses were $4.6 million or 17% of sales compared to $3.9 million or 17.7% of sales in the previous year. Based on our planned investments we expect SG&A expenses in the range of 17.8% to 18.2% for fiscal 2016. The effective tax rate for the quarter was 29.3% compared with 57.2% in the prior year. The year ago cash rate was unusually high due to the high income in the quarter with no benefit for the loss recorded for the UK and we had a full valuation allowance for our differed tax asset. We expect our overall tax rate going forward to be approximately 38%. Net income increased to $1.3 million or $0.32 per diluted share compared with income of $249,000 or $0.07 per diluted share a year ago. Late in the closing process of the quarter the company became aware of two errors as a result of management’s review of our German subsidiary’s balance sheet reconciliations. First management’s investigation determined that a net debit balance in the subsidiaries differed revenue account had been erroneously reclassified to accounts receivable. Instead, we should have reclassed the gross debit to the deferred revenue account into accounts receivable. Second certain accounts receivable entries were booked in the error two in the work-in-process inventory. Resolving this matters required investigation of the supporting documents and additional working analysis to assure that the accounts were correct. The investigation delayed our filing of the Form 10-Q and earnings announcement. Cash in short-term investments increased to $11.6 million from $11.2 million at year-end as a result of increased profitability in the quarter. Lastly, our Board of Directors voted to pay a quarterly dividend of $0.11 per share to shareholders of record on August 31, 2016 payable September 9, 2016. We aim to improve our bottom-line performance by focusing on our growth programs, increasing the level of high margin products and aligning our cost containment initiatives across the organization. I’ll now turn the call back to Victor.

Thanks Gary. Looking ahead in the High Performance products division, we’re focused on ramp up of our Myricom ARC’s series E Class adapter for financial service market, as well as launching the 10-Gig Ethernet adapter for our packet capture space. And we anticipate and we anticipate royalty revenue for one E-2D plane during Q4. In our Technology Solutions division, we remain focused on executing against our MSP strategy which we expect to be an excellent driver of growth in recurring sales for the long-term. Our pipeline is strong and we look forward to capitalizing on the opportunity further. In addition, we expect to see continued progress on the strategy of cross-selling between Technology Solution locations, as well as between Technology Solutions and High Performance products. While we still have much to do, the most significant changes to transform the business are in place. And we’re beginning to see positive results through the solid execution of our strategy. We have created many opportunities with CSP and we are looking to continue our momentum in Q4. And we will take questions now.

[Operator Instructions] Our first question comes from Joseph Nerges with Segrum Investments. Please go ahead.

Good afternoon gentlemen. Congratulations on a great quarter.

Thank you Joe.

Thanks Joe.

By the way your new website is – a great job I don’t who is responsible, I assume marketing was responsible but it seems to be a very comprehensive and very informative, let’s put it that way. I’ve got quite a few questions. So may right up there go on an overtime today. In your security I noticed that you have – your Vital™ Managed Services, you have three levels of service, was it ViewPlus and Elite, in other words three different levels of service.

That’s correct.

And is that something new or is that something just incorporated?

It’s not new we just kind of did to marking refresh of how we presented to our customers. We tried to just clarify a little clearer for – view is just basically the monitoring or just take the infrastructure, look at it and will let them know when they fix it and then different levels that will continue based on how integrated we get in the maximum as we take over the full infrastructure with 24/7 monitoring and we do physically and so that’s a different level. So it’s new marketing again something we’ve been doing.

Okay. As a follow-up to that I happen on the website now this might have been previous website, I don’t know, but I saw where you were listing locations on this. And I guess this was on the brochure and you listed both the Pasadena address and the low Mass address. And I was just wondering of course they were tied to mostly Myricom and HPP business. I was just wondering are you offering that service in both California and Massachusetts?

We’ll offer it anywhere but it’s all coming out of the Deerfield Beach office.

Okay so you can monitor from Deerfield Beach.

Correct.

A customer in either California or…

Yes it doesn’t matter. And we also have a full blown SOC security monitoring center in Germany.

Yes.

So it’s a very centralizer on security, monitoring only.

Yes.

Then we’ll pass it to the German facility just because they have expertise in that area of, a very high level with many engineers that support that security market. So it just depends on the level of security. We can also do here in the U.S. but if it’s a large environment we probably pass it off to the German. So we work together hand in hand to kind of help out with our customers that may be global.

Yes, but do you have any sales people in both California and are there any technology solution sales people in both of those locations that can offer this service? I mean, I assume most of Massachusetts is mostly Myricom type activity.

Yes, High Performance, right.

And the same…

Yes High Performance mostly are about low in the Pasadena office.

Okay. And we closed Joe, the Pasadena office is closed.

Okay, all right. I didn’t know, I thought I’ll list it one time on….

Yes.

Okay on the brochures.

Yes, but that is the original Myricom.

All right, another question. I did see reference also on probably the previous website, I don’t see it anymore, to an ARC Series F-Class, with the specifications out there with a possible release in the fourth quarter. I say release may be beta testing, I don’t know. Is that still in the mix for this year, or next year?

Right now we’re concentrating on the E-Series at this stage.

Okay. So you are not doing any work on – and but you have the design for the F-Series is that correct, pretty much what you want?

We’re looking at different avenues it might be there’s some other things we’re looking at right now…

Okay.

Right now, we can’t stay in these areas, yes, as the market changes we may have to make some decisions…

Okay.

So right now it is focused on the E.

While you just released it all, it is really just getting that one out in the field.

Yes.

And the security hacker services is that something the hired hacker I guess would you call it is that something newer is that always been offered previously?

That’s been offered in Germany for a while and we have adopted it in the U.S. probably I would say six to nine months ago.

Okay, so relatively new in the U.S.

Relatively new in here, yes, my goal is to try to leverage what we have built already in different areas and kind of consolidated. So we can offer very similar solutions to various customers it doesn’t matter what location they are at, leveraging – the engineers we have in-house.

Okay, are there any updates on OEM testing that you were talking about in the last conference call. In other words you had some – you referenced some OEM test, I guess in the packet capture market I guess that’s what it was being tested, is there any new on that or are they still testing?

They are still testing its moving along in the OEM space it takes a long time.

I understand I guess was wondered it would progressing to any extent.

Yes.

Okay. Another thing I didn't note. Again on one of your website that you have a security conference, I guess its – oh, I guess it’s called a security conference in Germany, security workshop on ended September. And I'm referencing back to your February conference call what you talked about two partners that were tying in with the German office particularly with – because of our security background in helping security. I noticed two names on the conference one was IBM Business partner note, I guess the other one was get Checkpoint star partner. They are the two people you’re referencing in your February conference call?

Its definitely changing right, we do shows all the time and sometimes we team up with various partners of Germany, those are the two main product lines that they sell and support.

Right.

So it depends on forgive me which one but the U.S. has them all the time also in one-time its with – we’ve had two way Checkpoint ourselves, that’s one of the product that we both sell and support, it could be HP, it could be Aruba, it could be various EMCs, it depends on which partner we are dealing with and who's willing to I guess team up with marketing funds to help support those shows.

I understand it, I was just referring back to because you referred to two partners if you want to call that you were working in Germany who did not specialize in the security and they were kind of utilizing our services to integrate with their customer base. That’s the only one I was just wondering if that those two names were the two you’re referring to?

No, if it’s in a security space those two are very focused with us in that space, so I doubt it was those two.

Okay. Very good, I noticed on the websites you have four different categories now and I see where you're listing security. Obviously you got Ethernet adapters, you’ve got the IT Solutions, you’ve got security and you’ve got signal processing. If security and I guess Frank – Frank Puetz, is that you had his name sort of General Manager of security that’s sort of that way. Is that is he at all involved with the U.S. other than like you said we can utilize services we have their need in Germany engineers or is that?

He is a GM for the Germany and UK.

Okay, all right nothing with do with the U.S. as far as while he has involved with the U.S. and security if we need their help.

Exactly, yes, we have meetings together, every couple of weeks in definitely monthly and he was just in the U.S. to do some strategic planning on the New Year coming up. So yes, everybody is talking and involved but he is directly responsible for Germany and UK.

Okay and one other question, I’ll let you go. In the press release you talked about we received a product revenue from an existing international customers is that on the 2000 or 3000 series is that what you are talking about in the press release. Is that we received product revenue from an existing international customer under HPP and I was just wondering if that series you’re referring to, or you’re referring to something with Myricom.

That one was that with Myricom.

That was with Myricom.

Yes.

Okay. So we have nothing – we did not getting 2000 or 3000 series revenue in the quarter from in this past quarter.

You mean from the…

From anywhere – do we get any 2000 or 3000 series of revenue…

We had some call but it was just small amount no large systems.

Okay, how about the – I like one more, I like to – promise.

Yes.

How about the follow-up on the legacy, large legacy order last quarter, you said there might be some follow-up orders was that whether any follow-up on that as of the last quarter or coming up do we know.

Yes, we’ve had some follow-up but not to the level that the initial but now there has been follow-up and then there is more opportunity going forward.

Was it in the third quarter report or is it going to be in – some of those following in the fourth quarter?

I’m just trying to remember I think we got it in the third quarter.

Okay. All right, thank you very much guys. I appreciate it. Great job and low – less drama at the end of the quarter would be nice. [Multiple Speakers] I’m sure you concur.

Yes, absolutely.

Absolutely.

Thanks a lot guys.

Thanks, Joe.

Have a great evening.

You too.

Thank you. [Operator Instructions] We will go next to William Kidston with North & Webster. Please go ahead.

Thanks guys. Did you guys just break out revenue by division and then operating income by division and then operating income as the royalties for the HPP division?

The latter I don't have, but I can give you the – this is the quarterly revenue. The quarterly revenue for the High Performance division was $5.6 million; the Technology Solutions was $21.3 million. The operating income for the High Performance was $1.6 million, and for the Technology Solutions was $300,000.

And what is the revenue associated with the three plan royalty rate, it's like $700,000 a plan?

$600,000.

Yes, the plans are more like a $600,000. And we have about $2 million in royalty revenue, William.

So my recommit you made $300,000 and then HPP you lost $400,000 if you back out the royalties, right? You’re saying $2 million of royalty income?

Yes.

And then can you guys just talk a little bit Victor or Gary around the accounting process that happens at the company closing in the books. I went back and looked and it's either every year or every couple of years going back to 2002 there has been various accounting issues. And I'm just wondering – we had the thing in the UK last year or earlier this year, now Germany is having problems, there was a restatement a couple of years ago. Can you guys just talk about the process and why there are so many issues? If this is the auditors lagging something, can you just comment on that?

Well, first of all we have internal control systems and that’s throughout the company. The situations we've had is – we've had some change in personnel that had created some of the problems. It has been primarily within the foreign market that it really had the major issues that have cropped up. We had our new system that went in and our controller or previous controller left the company has we were integrating the system and we had to bring in new people. And so there was controls that we have in place and some of those procedures were not followed through and that’s we put in added procedures sense then as well as back to – when we got the restatement which was a gross versus net, it was a balance sheet issue that came up primarily in German. So we do have our procedures in controls and we are now in the throes of increasing those controls. We've spent a great deal of time in this last session doing soul searching and we've made a number of changes.

That's good to here. And I appreciate you taking the time to break that down for me. Do you guys ever experience or do you have a hedging plan in place? What was there – what was the foreign currency change and how did that affect this quarter's earnings?

Well, we don't really have a true hedging strategy from the map. We had looked at a lot of alternatives; we used the currencies within those markets. A lot of the issues that we have is we have some customers who pay us in multiple currencies and they change them periodically. So we get some adverse conditions, we had some benefits come out on – in the quarter and the number for currency was – there was a loss of $55,000 foreign exchange.

Got you. Got you. Thank you very much. And it looks like you guys are growing the business, so congratulations there and keep up the good work on the top line.

Thank you.

Thanks.

Thank you. It appears we have no further questions at this time. I'll turn it back to management for any additional or closing remarks.

Thank you all for joining us this afternoon. We look forward to the speaking you again on our next call.

Thank you.

This does conclude today’s conference. We appreciate your participation. You may disconnect at any time and have a great day.