CSP Inc. (CSPI) Q4 2010 Earnings Report, Transcript and Summary

Gary Levine - Chief Financial Officer Alex Lupinetti - Chairman, President and Chief Executive Officer

Good day, ladies and gentlemen, and welcome to CSP Inc.’s fourth-quarter and fiscal year 2010 conference call. My name is [Operator name], 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.

Thank you, [Operator name], 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 fourth-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 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 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 into our financial review. Our fourth-quarter results capped an excellent year of financial performance. During the quarter, total sales were 23.9 million dollars, an increase of 31% from Q4 of fiscal 2009. The year over year increase was driven by 42% growth at our Service and Systems Integration business, while Systems revenues were down 45% year over year. Our strong overall year-over-year sales growth was partially offset by a negative foreign exchange effect of approximately 600,000 dollars due to the strong U.S. dollar in Q4 2010 versus Q4 2009. For the year, revenue grew 14% to 95 million dollars as a result of a 4% increase at Systems and 15% growth at Service and Systems Integration. CSP’s total cost of sales for Q4 increased year over year to 19.3 million dollars from 14.7 million dollars in Q4 2009 due to higher sales volume. Gross profit for the quarter…

Thanks Gary. And welcome to our call this morning. As Gary mentioned, we performed well in the fourth quarter, ending what has been a successful year – on the top and bottom lines, as well as in terms of our strategic execution. I’ll provide you with some color about the performance of our operating segments in the fourth quarter and the year, and what we see going forward for each. Let’s start first with our Systems segment, which consists of our MultiComputer business. Our Systems segment sells exclusively to the major prime contractors that sell to the U.S. Defense Department. The Systems business had a good year, with revenues up 4%. Sales benefited from a follow-on order for FastCluster MultiComputer systems and related services as part of our contract with Raytheon. The Systems segment contributed even more significantly to the bottom-line in fiscal 2010 as a result of high-margin royalty payments from Lockheed Martin related to the E2D Advanced Hawkeye intelligence, surveillance and reconnaissance aircraft. The payments were for aircraft being built as part of the Low Rate Initial Production Phase, or LRIP. Systems gross margin was up about 800 basis points for the year. Looking specifically at Q4, while Systems revenues were down 45% from Q4 of fiscal 2009, we recorded 1.1 million dollars in high-margin royalty payments from Lockheed Martin. If you remember from last quarter’s call, we had expected 1.6 million dollars in royalty payments for radar processing systems by fiscal year end. About a half million dollars of those payments were pushed out by just a few days into the first quarter of fiscal 2011. During the year we continued to invest in technology to position CSP to capitalize on opportunities in intelligence, surveillance and reconnaissance (or ISR), which we believe is a U.S. military priority.…

Thank you for joining us today. We look forward to speaking with you next quarter.