CSP Inc. (CSPI) Q2 2011 Earnings Report, Transcript and Summary

Alexander R. Lupinetti - Chairman and Chief Executive Officer Gary W. Levine - Chief Financial Officer

Good day, ladies and gentlemen, and welcome to CSP Inc.’s second-quarter fiscal 2011 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 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 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. We are pleased with our financial performance this quarter, given the difficult comparison we had with the second quarter of 2010. For the year-to-date, we are running significantly ahead of where we thought we would be, especially on the bottom line. Let’s walk through the income statement and I can provide you with more perspective. Total sales were $19.2 million, compared with $23.9 million in the second quarter a year ago. The effect of foreign currency was not significant on a year-over-year basis. The year-over-year revenue decrease was the result of two factors. First, sales at our Systems business declined by 50% as result of a difficult comparison with the second quarter of 2010 when we recorded a 3.7 million dollar follow-on order to Raytheon for the shipment of two FastCluster MultiComputer systems and related services. In addition, we had a 13% decrease in…

Thanks Gary. And welcome to our call this morning. We are quite pleased with how our year is unfolding. After reporting a stellar Q1, notwithstanding unusually difficult year-over-year comparisons in both our Systems and our Service and Systems Integration businesses in Q2. Nonetheless, we delivered another quarter that surpassed our expectations on both the top and bottom lines. With that said, I’ll begin by providing some context around our second-quarter results for both our Service and Systems Integration and our Systems segments, and then we’ll take your questions. Let’s start first with our Systems segment, which consists of our MultiComputer business. This business sells exclusively to the major prime contractors that sell to the U.S. Defense Department. The Systems business reported revenues of $2.3 million compared with $4.6 million in the second quarter last year. As Gary mentioned, the year-ago quarter benefited from $3.7 million in revenue from follow-on orders from Raytheon. The highlight of the quarter was the budget approval of 10 new E2D Advanced Hawkeye intelligence, surveillance and reconnaissance aircraft. You might remember that on last quarter’s call we mentioned that we were in discussions with Lockheed Martin regarding phases 3 and 4 of the Low Rate Initial Production Phase, or LRIP. These 10 aircraft, which we expect will be built over the next few years, are part of phases 3 and 4 of the LRIP. This is very exciting news. The E2D is a perfect example of the military’s focus on intelligence, surveillance and reconnaissance, and we will continue to invest in technology to position CSP to capitalize on this trend. Let’s turn now to our Service and Systems Integration segment, which includes our MODCOMP subsidiary. This segment provides solutions and services for complex IT environments focusing on storage and servers, network security, unified communications and consulting…

Thank you for joining us today. We look forward to speaking with you on our Q3 call this summer.