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CSP's CEO Discusses F2Q11 Results - Earnings Call Transcript

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 Service and Systems Integration sales due primarily to reduced sales to a major hosting customer. As we discussed previously, that customer acquired one of our largest competitors in 2010. In addition, the hosting company also had expected a downturn in business from one of its own customers that had previously created significant demand for CSP’s products.

For the first half of the year, despite the difficult comparisons in both businesses, sales are only down by 3% to $41.3 million.

CSP’s total cost of sales for Q2 decreased to $15.0 million from $18.4 million in Q2 2010 due to the lower year-over-year volume. Gross profit for the quarter was $4.2 million compared with $5.5 million as a result of the lower sales. Gross margin was 22% compared with 23% in Q2 2010. For the first half of the year, gross margins are 21% compared with 18% for the first half of 2010 as a result of the inclusion of $1.6 million of royalty revenue in the Systems business.

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