China Security & Surveillance Technology, Inc. Q1 2010 Earnings Call Transcript

China Security & Surveillance Technology, Inc. Q1 2010 Earnings Call Transcript
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China Security & Surveillance Technology, Inc. (CSR)

Q1 2010 Earnings Call Transcript

April 26, 2010 8:00 am ET

Executives

Patrick Yu – IR, Fleishman-Hillard

Terence Yap – Vice Chairman and CFO

Presentation

Operator

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Greetings and welcome to the China Security & Surveillance Technology Incorporated first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Yu from Fleishman-Hillard, Investor Relations agency for China Security & Surveillance Technology. Mr. Yu, you may begin.

Patrick Yu

Thank you, Diego. Good morning and welcome to CSST’s first quarter 2010 earnings call. Here with me today is Vice Chairman and Chief Financial Officer, Terence Yap. In the conference call, Terence will update you on the company’s results in the first quarter of 2010. Since the company is in a process of conducting an underwritten public offering of securities, our communications will be limited by the applicable regulations of the US SEC. Unfortunately, we will not have a Q&A session in this conference call. We appreciate your understanding.

Before we get underway, let me remind you that the press release, the financial information and presentation slides used for this call are all available on the Investor Relations page of CSST Website, which is http://irpage.net/csct/index.html. I'd also like to take a minute to review the company’s Safe Harbor statement, which you can find it on slide two, which says that this conference call may contain forward-looking statements concerning CSST's business, which are intended to be covered by the Safe Harbor for forward-looking statements under the Private Securities Litigation Reform Act of 1995.

The actual results may differ materially from the forward-looking statements depending on a number of risk factors including, but not limited to, general economic and business conditions, new product developments, installations, market and company’s filing with the SEC. CSST undertakes no duty to revise or update any forward-looking statements, except as required by applicable law.

Without further adieu, I will now turn the call over to CSST’s Vice Chairman and Chief Financial Officer, Terence. Terence, please.

Terence Yap

Thank you Patrick. Good morning, viewers in Asia a very good evening. Before I cover the details, I would like to take a moment and step back and talk just briefly about what we are seeing across the company and we are executing and approaching things in the first quarter.

If you look at slide 3 first of all, no surprise to anyone, we continued to see growing demand from both the government and corporate sectors on security and surveillance solutions in China. This later-than-usual Chinese New Year holiday, in particular the safe city and easily projects the growth potential is enormous. The robust growth of the backlog number reflects our strong near-term business prospects.

Second, while we continue to see the pressure on selling prices from the corporate sector, we recorded encourage growth in the earnings this quarter. We will continue to maintain a sharp focus on cost management as we go through the year.

Thirdly, we have continued to expand and to ramp up growth in the areas that are key to our growth strategy. Those are the securities services business and a key large government projects. Our goal is rather simple. It’s to make sure that we are strong financially and operationally with good momentum in areas that will lead next wave of our growth. With the proposed underwritten offering of 20 million shares of common stock, we expect to use the proceeds from the sale of common stock for general corporate purposes, including future capacity expansion, strategic acquisitions, capital expenditures and research and development expenditures.

With that perspective, we are proud of what we have accomplished in this quarter. Firstly, financial results, please refer to slide number 4. We delivered strong revenue growth in the first quarter of 2010. Revenues totaled $120.19 million, up 24.7% year-over-year from $96.42 million in the first quarter of 2009. The increase was mainly due to the growth in the surveillance and safety market in China, increased market demand for our products, and our increased brand recognition within China.

Our strategic focus to increase of distribution channels during 2008 and working capital from short-term borrowings with local banks also allows us to capitalize on the growth of the market demand in the future. Historically, the first quarter has generally been slow quarter for us due to the Chinese holiday, and the first quarter has generally been the strongest quarter. Management believes that seasonality pattern will be the same in 2010, with the majority of our earnings being recognized in the second half of the year.

Our revenue mix in the first quarter of 2010 remains favorably weighted towards our installation business. In the first quarter of 2010, installation business growth continued to be robust, driven by broader industry demand in China, various governmental policies, and a stronger distribution network. Total installation business revenues were up to $92.75 million or 77.2% of total revenues in the first quarter of 2010 compared with $74.92 million or 77.7% of total revenues in the first quarter of last year, a very encouraging progress.

Manufacturing segment generated revenues of $16.01 million, representing 13.3% of our total revenues versus $15.31 million or 15.9% of total revenues in the same period last year. Our distribution segment contributed a healthy $11.43 million or 9.5% of our overall revenues in the first quarter versus $6.19 million or 6.4% of total revenues in the same period last year.

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