F4Q10 Earnings Call

December 14, 2010, 10:00 AM ET


Gary Levine - Chief Financial Officer

Alex Lupinetti - Chairman, President and Chief Executive Officer



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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.

Gary Levine

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.

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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 grew 23% to 4.6 million dollars as a result of the sales increase. Overall gross margin was flat at 19%.

Fourth-quarter Engineering and Development expense of approximately 600,000 dollars increased from 400,000 dollars in Q4 2009, and was up by about 100 basis points as a percentage of sales to 2.3%. This was still slightly below our target range for Engineering and Development expenses of 2.4% to 2.6% of sales.

SG&A expenses increased by 5% on a real-dollar basis to 3.9 million dollars in the quarter. This primarily reflected bonus expenses on increased profits. SG&A was 16.3% of sales in Q4 of fiscal 2010, compared with 20.4% of sales in Q4 last year. Our target range for SG&A expense is in the range of 18.0% to 18.4%.

Other income in the fourth quarter of 2010 was 53,000 dollars compared with an expense of 144,000 dollars in Q4 last year.

Our effective tax rate was XX%. We expect our effective tax rate will be approximately XX% for the first quarter of fiscal 2011.

The net profit for the fourth quarter was $4,000, or $0.00 per share, compared with a net loss of $3.6 million, or $1.03 per share, in the fourth quarter of fiscal 2009.

For full year fiscal 2010, net income was $763,000, or $0.21 per diluted share, compared with a net loss of $3.8 million, or $1.05 per share, for fiscal 2009. Last year’s net loss in Q4 and the year included a goodwill impairment charge of 3.9 million dollars.

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

Cash and short-term investments decreased by approximately 3.4 million dollars, from 18.9 million dollars at fiscal year end September 30, 2009 to 15.5 million dollars as of September 30, 2010. The decrease was primarily due to an increase in accounts receivables in line with higher year-over-year sales volume, as well as the effect of foreign exchange, and purchases of property, plant and equipment. In addition, CSP purchased approximately $400,000 of common stock during the year.

Cash decreased sequentially by 2.3 million dollars from the third quarter as a result of higher receivables.

As we have talked about in the past, 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.

As we enter fiscal 2011, we will continue to run the company with a cautious approach, tightly managing our expenses and focusing on efficient working capital management, with the goal of driving long-term profitable growth.

With that, I’ll now turn the call over to Alex.

Alex Lupinetti

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.

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