China Security & Surveillance Technology Inc. (CSR)

Q2 2010 Earnings Conference Call

July 26, 2010 08:00 am ET


Patrick Yu - IR

Terence Yap - Vice Chairman & CFO


Liang Hsu - Brean Murray, Carret & Co, LLC

Andy Yeung - Oppenheimer & Co Inc.

Michael Kim - Imperial Capital



Greetings, and welcome to the China Security & Surveillance Technology Incorporated second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Patrick Yu, from Fleishman-Hillard, the IR agency for China Security & Surveillance Technology. Thank you. Mr. Yu, you may begin.

Patrick Yu

Hi. Thank you, Jackie. Morning, everyone. Welcome to CSST second quarter 2010 earnings conference call. Here with me today are Vice Chairman and Chief Financial Officer, Terence Yap; Financial Controller, Jessica Cheung and the Head of Internal Control, [Kevin John].

Before we get underway, let me remind you that the press release, our financial information and the presentation slides used for this call are all available on the Investor Relations page of CSST website, which is

I would also like to take a minute to review the company's Safe Harbor statements, which is found 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 and 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 business conditions, new product developments, installations, market acceptance, additional competition from existing and new competitors, changes in new technology, and various other factors beyond the company's control.

All forward-looking statements are expressly qualified in their [entirety] by the cautionary statements and risk factors detailed in the company's filings with the SEC. CSST undertakes no duty to revise or update any forward-looking statements, except as required by applicable law.

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

Terence Yap

Thank you very much Patrick. Good morning everyone and for those in Asia, a very good evening. Before we get into the details, I would like to take just a couple of minutes to talk about what we are seeing in our business and the general economic environment. The market conditions for the surveillance and safety industry in China are generally consistent with what we saw in the past few quarters.

Demand for new products and services from corporate and government companies continue to grow well in China. We are pleased to report continued growth in sizeable government contracts in safe cities and e-cities project. So we continuously invest and grow in key areas, such as large-scale government projects and security service businesses.

Our goal is to become stronger financially and operationally with solid momentum in those areas that will lead to our future growth. That’s the game plan for this year and the game plan behind our achievement in the second quarter which are highlighted on page 3 of our earnings PPT slide. This quarter, we achieved strong total revenue growth to a tune of $168.35 million.

We delivered $0.23 of earnings per share which was up 76.9% year-over-year. We increased our gross margin and operating margin by 390 basis points and 570 basis points respectively and net income was up 174%. These results can be attributed largely to the following, but we had excellent momentum in the installation bit, which contributed more strongly for revenue growth and margin improvement.

We continue to execute on large-scale government projects from safety cities and e-cities in China. Installation segment revenue grew by 19.6%, the highest among all four segments. Gross margin of installation segment rose to 27.8%, up by 630 basis points compared to the same quarter of last year.

Secondly, we continue to look into the new business opportunities from both government and corporate sector while focusing on execution and operating efficiencies. We have already taken the lead in deploying and enhancing our industry leading products and solutions for government and private customers. We will continue to increase productivity by enhancing collaboration across our different operations, improving our strategic position and advancing our long-term growth potential.

Thirdly, our strategic efforts in targeting our established customer base to build on service business, was starting to be realized in this quarter. This is the first quarter we successfully report the revenues from the service segment, which recorded $3.35 million in revenue contribution. While the revenue contribution is relatively small on this page, we are encouraged by the growth in this segment which we believe will favorably provide us with higher margin recurring revenue in the long run.

To sum up this quarter, we delivered solid revenue growth and earnings per share with profit margin improvement. We also had good execution on the cost side and of course this momentum in our key growth guidance.

First of all, allow me to go through the financial results. With that review, I’ll walk you throughout second quarter financial result on slide 4.

Revenues, we experienced solid growth in revenues during the second quarter. The revenues totaled $168.35 million, up 18.6% from the same quarter in 2009. The revenue growth from the second quarter was broad-based with improvements across all major segments and continued growth in industry demand of surveillance and safety products of China. Our efforts to raise our brand awareness and increase our distribution channels in China over the past few years also contributed to the revenue growth.

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