CSPI

CSP Inc. (CSPI)

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CSP Inc. (CSPI)

F2Q10 (Qtr End 03/31/2010) Earnings Call

May 05, 2010 10.00 AM ET

Executives

Gary Levine - Chief Financial Officer

Alex Lupinetti - Chairman, President and Chief Executive Officer

Presentation

Operator

Good day, ladies and gentlemen, and welcome to CSP Inc.'s second-quarter fiscal year 2010 conference call. My name is Nikki, and I will be your coordinator for today.

At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference call. (Operator Instructions)

I would now like to turn the call over to Mr. Gary Levine, CSP's chief financial officer. Please proceed, Gary.

Gary Levine

Thank you, Nikki, and good morning, everyone. With me on the call today is our chairman, president and chief executive officer, Alex Lupinetti. I'll take you through our second-quarter financial results, and then Alex will review our operations before we take your questions.

But first, our safe harbor statement. During the call, we will be taking 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 risks include 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.

With that, let's get right to our financial review.

We're pleased with our performance in the second quarter, both from a top- and bottom-line perspective.

Our total sales were 23.9 million dollars for the second quarter of fiscal 2010, an increase of 6% from Q2 of fiscal '09, and up 28% compared with the sequential first quarter. The revenue growth at our Systems segment was primarily driven by a 3.7 million dollar follow-on order from Raytheon. The impact of a weaker U.S. dollar versus the euro in Q2 was a favorable 300,000 dollars, so the year-over-year increase in revenue on a constant dollar basis was 1.1 million dollars.

For the second quarter, we reported net income of 989,000 dollars, or 28 cents per diluted share, compared with net income of 212,000 dollars, or 6 cents per diluted share, in the second quarter of fiscal 2009.

Our total cost of sales for Q2 were relatively flat compared with last year at 18.4 million dollars, while gross profit for the quarter increased 38% to 5.5 million as a result of volume leverage.

Second-quarter Engineering and Development expense decreased by 10% on a real-dollar basis to 430,000 dollars, or 1.8% of sales, primarily as a result of a lower headcount on a year-over-year basis. We expect Engineering and Development expense to be in the range of 2.4% to 2.6% of sales going forward.

SG&A expense increased by 6.8% on a real-dollar basis to 3.4 million dollars in the quarter. This increase primarily reflected slightly higher compensation expense. SG&A was 14.3% of sales in Q2 of fiscal 2010, compared with 14.2% of sales in Q2 last year. We expect SG&A expense to be in the range of 18.0% to 18.4% going forward.

Other income in the second quarter of 2010 was an expense of 16,000 dollars, compared with an expense of 25,000 in Q2 last year.

Our income tax rate was 39% in the second quarter and we expect the income tax rate to be approximately 39% for fiscal 2010.

Let's now turn to the balance sheet . . .

Cash and short-term investments decreased by approximately 6.6 million dollars, from 18.9 million at our fiscal year end on September 30, 2009 to 12.3 million dollars as of March 31, 2010. The decrease was primarily the result of a 7.4 million dollar increase in receivables due to orders received toward the end of the quarter. CSP's cash position can vary significantly from quarter to quarter due to the high working capital requirements needed to fund large projects at both our Systems and our Services and Systems Integration segments.

We remain cautiously optimistic for the second half of fiscal 2010. Going forward, we will continue to tightly control our expenses and focus on good working capital management, with the purpose of making the investments to drive long-term profitable growth.

I'll now turn the call over to Alex.

Alex Lupinetti

Thanks Gary. And welcome everyone to our call this morning.

As Gary noted, we performed quiet well from a financial perspective in the second fiscal quarter as we grew revenues by 6% year over year and more than tripled net income. Q2 also represented the second-consecutive quarter of sequential revenue growth. And from a market perspective, we are encouraged by the positive signs that we are seeing in both of our segments.

Let me review the performance of each segment during the quarter, starting with our Systems segment. This is our MultiComputer business, which focuses on very high speed digital signal processing for defense electronics applications, including advanced radar in the intelligence, surveillance and reconnaissance, or ISR, space.

Our Systems business grew by 78% year over year, which was primarily due to the shipment of two FastCluster MultiComputer systems and related services for a total of 3.7 million dollars. This shipment was a follow-on order as part of our contract with Raytheon that we have discussed on previous calls.

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