CSP Inc. (NASDAQ:CSPI) Q1 2019 Earnings Conference Call Transcript

Feb 13, 2019 • 09:00 am ET

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CSP Inc. (NASDAQ:CSPI) Q1 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to the CSPI's First Quarter Fiscal 2019 Conference Call. My name is Aaron, and I will be your conference coordinator today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference call. (Operator Instructions)

I would now like to turn the call over to CSPI, Chief Financial Officer, Gary Levine. Please proceed, sir.

Executive
Gary Levine

Good morning, everyone, and thank you for joining us. With me on the call today is Victor Dellovo, CSPI's Chief Executive Officer.

Before we begin, I would like to remind you that during today's 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.

During today's call, after Victor provides an introduction, I'll discuss our first quarter financials. Victor will come back on for an update on the business segments and on our strategic progress, and then, we'll open it up to your questions. With that, I'll turn it over to Victor.

Executive
Victor Dellovo

Thanks, Gary. We delivered a solid start to the fiscal year 2019, with revenues up 14%. Strong demand for managed IT services in the US offset softer multicomputer sales and development delays for our next generation cyber security products. On the bottom line, we reported net income of $50,000, or $0.01 per diluted share.

In our High Performance Products segment, we continue to develop value-added capabilities for our legacy Myricom network adapters and have now advanced our next generation ARIA SDS cyber security solutions to the customer evaluation stage. And in Technology Solution, our US operations benefit from new and larger projects for our managed IT services in wireless practice.

After Gary reviews our financial results for the quarter, I'll come back with detailed review of our achievements and our progress in Q1 by segment. Gary?

Executive
Gary Levine

Thank you, Victor. For the first quarter of fiscal 2019, revenues increased to $19 million compared to $16.6 million a year ago. Our total cost of sales increased to $14.6 million from $12.3 million in the prior year quarter, in line with the higher sales volume. Gross profit for the quarter was $4.3 million, flat from a year ago. Gross margin of 22.8% decreased from 26.2% a year ago, primarily due to the higher royalty revenue from multicomputer sales in Q1 of 2018.

First quarter engineering and development expenses were $745,000, up from $698,000 a year ago, reflecting our continued investment in the development of our next generation cyber security solutions. As a percentage of sales, Q1