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CSP Inc. Reports Operating Results (10-Q)

August 14, 2009 | About:
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CSP Inc. (CSPI) filed Quarterly Report for the period ended 2009-06-30.

CSP Inc. develop and market Internet software for E-commerce solutions image processing software network management integration services and high-performance computer systems. The MultiComputer Division supplies high-performance multiprocessing systems for a broad array of defense applications including radar sonar and surveillance signal processing. The company\'s MODCOMP Inc. subsidiary is a leading provider of Internet software solutions and systems integration. MODCOMP works with third parties to develop customized application solutions. (PRESS RELEASE) CSP Inc. has a market cap of $12.7 million; its shares were traded at around $3.65 with a P/E ratio of 40.5 and P/S ratio of 0.2.

Highlight of Business Operations:

A significant factor impacting the fluctuation in total revenues, year over year, was the currency exchange rate fluctuation of the strengthening US Dollar versus both the Pound Sterling in Great Britain (GBP) and the Euro in Germany for the nine month period ended June 30, 2009 versus the year-ago nine month period. This currency exchange fluctuation negatively impacted the current year nine-month period revenues when comparing to the prior fiscal year nine month period, by approximately $3.1 million. Hence, if the exchange rates between the GBP, the Euro and the US Dollar had stayed the same as the prior year nine month period, the increase in revenue would have been approximately $9.6 million.

Product revenues for the first nine months of fiscal year 2009 increased by approximately $6.2 million, or 13% compared to the first nine months of fiscal 2008. Service and System Integration segment product revenue increased by approximately $5.5 million, while Systems segment product revenue increased by approximately $720 thousand.

The increase in Service and System Integration segment product sales for the first nine months of fiscal 2009 was due to a $9.9 million increase in shipments of third-party products from the U.S. division of the segment, due mainly to in increase in sales to the US divisions four largest customers, which accounted for approximately $8.7 million of the increase plus product sales of approximately $3.0 million from the acquisition of R2 Technologies (R2), offset by a net decrease in sales to all other customers of approximately $1.7 million. R2 was acquired in September of 2008, hence the nine months ended June 30, 2008, included no sales from R2. Offsetting the increase from the US division, product sales of the segments German division decreased by approximately $4.5 million, due to a decrease in sales volume which accounted for approximately $2.8 million, and an unfavorable exchange rate fluctuation of the Euro versus the US Dollar which accounted for approximately $1.7 million of the decrease. The decrease in product sales volume from the German division of $2.8 million was due to the economic and technology sector slowdown which resulted in lower sales volume from several of the divisions largest customers; including a cable and internet service provider and a large German systems integrator. In the UK division, product sales increased by approximately $150 thousand due to a product order for a customer acquired from the R2 acquisition.

Systems segment product revenue for the first nine months of fiscal year 2009 compared to the same period in fiscal year 2008 increased by approximately $720 thousand. This increase was due primarily to increased product sales to Lockheed Martin which increased by approximately $1.7 million, increased sales to BAE Systems Inc of approximately $761 thousand offset by decreased product sales to Kyokuto Boeki Kaisha (KBK) of approximately $1.5 million and General Dynamics of approximately $173 thousand.

Service revenues in the Service and System Integration segment for the first nine months of fiscal year 2009 decreased by approximately $1.3 million compared to the first nine months of fiscal 2008. This decrease was driven by lower service revenues from the segments German and UK divisions which decreased by approximately $1.2 million and approximately $600 thousand, respectively; which amounted to an aggregate decrease from the European subsidiaries of approximately $1.8 million. This decrease from the European subsidiaries was driven, in large part, by the unfavorable exchange rate fluctuations of the Euro and GBP versus the US Dollar which accounted for approximately $1.4 million of the decrease. In constant US Dollars, that is, if those exchange rates had remained the same year over year, there was a decrease in service revenues from the European subsidiaries of approximately $400 thousand. This decrease in service revenue volume from the German and UK divisions was due to the economic and technology sector slowdown which resulted in lower sales volume from several of the segments largest customers in Germany; including a cable and internet service provider and a large German systems integrator. In the US division of the Service and System Integration segment, service revenue increased by approximately $562 thousand, which resulted primarily from R2 which the Company acquired on September 25, 2008. R2 generated $845 thousand in service revenues for the nine months ended June 30, 2009. Offsetting this increase, services revenues decreased in the legacy business of the US division of the segment by approximately $285 thousand due primarily to a lower volume of maintenance contracts during the nine months ended June 30, 2009 versus the nine months ended June 30, 2008.

The increase in Americas revenue for the first nine months of 2009 versus the corresponding prior year nine months was primarily the result of the increase in Systems segment sales to US customers which increased by approximately $3.9 million plus the increase in revenues of the US division of the Service and System Integration segment to North American customers, which increased by approximately $11.3 million. The decrease shown above in sales to Europe was primarily the result of lower sales from the German and UK divisions of the Service and System Integration segment, where sales in Europe decreased by approximately $5.8 million and $435 thousand, respectively. The impact of the strengthening US Dollar versus the Euro and GBP accounted for approximately $2.6 million from the German division and $562 thousand from the UK division, respectively, of the total decreases in sales to Europe from these divisions, referred to previously. Offsetting the decreases in sales to Europe from the European divisions, sales to Europe from the US division of the Service and Systems Integration segment increased by approximately $250 thousand. The decreased Asia Pacific sales were primarily the result of the decrease in sales to KBK of approximately $1.6 million, as described above, from the Systems segment, and a decrease in sales to Asia Pacific from the US division of the Service and Systems Integration segment of approximately $1.1 million.

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