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Communications Systems Posts Second Quarter 2014 Financial Results [Professional Services Close - Up]
[August 11, 2014]

Communications Systems Posts Second Quarter 2014 Financial Results [Professional Services Close - Up]

(Professional Services Close - Up Via Acquire Media NewsEdge) Communications Systems released financial results for the second quarter ended June 30, (Q2 2014), including a discussion of results of operations by segment.

In its release on August 6, the Company noted report details: CSI's Interim Chief Executive Officer Roger H.D. Lacey commented, "Our results for the second quarter reflect continuing growth at Suttle, which achieved large gains in revenues, gross margin and operating income, and significant progress at Transition Networks and JDL Technologies in repositioning for their future growth. We will continue to implement our previously announced recovery plan over the next several quarters.

"Revenues at Suttle increased on both a year-over-year and sequential quarterly basis due in large part to sales from core high- speed copper connectivity products and from new FTTx (fiber to the home or node) product platforms that we commenced shipping in April to a Tier 1 carrier. Suttle's performance should continue to improve throughout 2014, because of further sales of these and other recently developed products. Suttle also recently introduced MediaMAX, a new brand of products that meet the growing need for wired and wireless high-speed, high-quality triple play connectivity to all areas of the home and small office, while lowering total cost of ownership. Revenues at Transition Networks also increased on both a year-over-year and sequential quarterly basis. Transition Networks remains focused on repositioning its business and the continued refinement of its strategy should be evident in succeeding quarters. Results at JDL Technologies continued to reflect reduced federal and local funding for educational IT investments, particularly as the E- Rate program is undergoing extensive modernization. We are continuing to refine JDL Technologies' business model to reduce its dependence on government funding, pursuing opportunities to provide managed services and other network services." Lacey concluded, "We ended the quarter in a strong financial position, which will help support our ongoing growth initiatives. CSI's balance sheet at June 30, included cash, cash equivalents, and investments of $31.5 million, working capital of $61.8 million, and stockholders' equity of $103.8 million." Segment Financial Overview CSI operates through the following business units: -Suttle manufactures and markets copper and fiber connectivity systems, enclosure systems, xDSL filters and splitters, and active technologies for voice, data and video communications under the Suttle brand in the United States and internationally; -Transition Networks manufactures network interface devices (NIDs), media converters, network interface cards (NICs), Ethernet switches, and other connectivity products that offer customers the ability to affordably integrate fiber optics into any data network; and -JDL Technologies provides technology solutions including virtualization, managed services, wired and wireless network design and implementation, HIPAA-compliant IT solutions, and converged infrastructure configuration and deployment.

Q2 2014 sales rose 37 percent from Q2 2013, due to revenue generated from new FTTx product platforms. Sales to communication service providers rose 50 percent to $16 million from $10.6 million in Q2 2013, and comprised 84 percent of total segment revenues, up from 77 percent in Q2 2013. This increase was due to growth in core high-speed copper connectivity products and success in securing new business in multiple FTTx domains.

Gross margin in Q2 2014 rose 62 percent to $6.3 million, or 33 percent of sales, from $3.9 million, or 28 percent of sales, in Q2 2013. This was the result of the introduction of new FTTx products, focused value engineering and cost optimization efforts, and economies of scale.

Q2 2014 sales rose 11 percent from Q2 2013. Sales in North America increased 12 percent to $8.2 million due to improving conditions at key customers, and Rest of World sales rose 19 percent to $2.2 million primarily due to higher sales in Latin America. These improvements more than offset an 11 percent sales decline in Europe, Middle East, Africa (EMEA).

Gross margin decreased 5 percent to $5.4 million, or 47 percent of sales, from $5.7 million, or 54 percent of sales, in Q2 2013, due to unfavorable product mix and pricing pressure.

Results at JDL Technologies continue to be affected by the federal government's decision to withhold all priority two E-Rate funding this year, as the E-Rate program undergoes an extensive modernization project that will affect most key elements in the program. The E-Rate program was developed to assist schools and libraries in the United States in obtaining affordable telecommunications and Internet access.

Sales declined 65 percent to $2.6 million in Q2 2014 from $7.6 million in Q2 2013. Reflecting JDL Technologies' ongoing initiative to expand its reach in the South Florida commercial market, sales to small- and medium-sized commercial businesses (SMBs) increased by 36 percent to $0.6 million in Q2 2014 from $0.4 million in Q2 2013.

Q2 2014 gross margin declined 78 percent to $0.4 million, or 16 percent of sales, from $2.0 million, or 26 percent of sales, in Q2 2013, primarily due to a change in revenue mix led by an increase in infrastructure sales to Broward County Public Schools, where margins have tended to be lower.

Communications Systems provides physical connectivity infrastructure and services for global deployments of broadband networks.

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