CSP INC /MA/ (CSPI)·Q1 2025 Earnings Summary

Executive Summary

• Q1 FY2025 revenue grew 2% year over year to $15.7M, driven by services revenue up 17% to $4.655M; gross margin expanded >200 bps to 29.1% and diluted EPS was $0.05, vs $(0.01) a year ago and $(0.18) last quarter .
• Technology Solutions (TS) led performance and generated operating income; management highlighted strengthening cloud-based and cruise line activity alongside new AZT PROTECT wins in OT markets (utilities, wastewater) .
• Balance sheet remained robust with $30.7M cash; Board declared a $0.03 quarterly dividend payable March 10, 2025 (record date Feb 24, 2025) .
• Management expects a significant increase in AZT PROTECT revenue in FY2025 as Rockwell distributor partnerships ramp; execution on channel enablement is a key stock catalyst .
• No specific quantitative guidance issued; S&P Global consensus estimates for Q1 FY2025 were unavailable due to access limits, so estimate beat/miss could not be assessed at this time [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

• “We reported increases in total and services revenue, expanded our gross margin and generated a quarterly net income of $0.05 per common share - diluted” .
• TS business “performed well... cloud-based business remained strong and the sales to cruise lines increased,” with operating income contribution; AZT PROTECT signed several new customers in OT markets .
• Lead generation from Rockwell and other events remains strong; management is targeting mid-market OT customers with shorter sales cycles to accelerate adoption .

What Went Wrong

• Despite net profitability, the company recorded an operating loss of $(0.354)M in Q1 FY2025; favorable other income and tax benefit drove bottom-line profitability .
• Product revenue declined year over year ($11.015M vs $11.407M), and SG&A increased to $4.132M due to trade show and travel, and higher commissions in TS .
• AZT PROTECT revenue remains early-stage; investors expressed concerns about ramp speed and brand recognition, and management acknowledged the time required to build distribution and partner enablement .

Financial Results

Consolidated Performance vs Prior Quarters

Notes: Management disclosed a 200+ bps YoY gross margin expansion in Q1 FY2025 and services-led mix shift benefits .

Segment/Line of Business Breakdown (Product vs Services)

Note: In the Q4 FY2024 narrative, services were described as ~$4.0M; the detailed statement shows $3.950M (rounding difference) .

KPIs and Operating Expense Detail

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “We reported increases in total and services revenue, expanded our gross margin and generated a quarterly net income of $0.05 per common share - diluted… signed several new customers for the AZT PROTECT™ offering… build our presence in the OT market and drive the HPP business.”
• CFO: “Service revenue represented $4.7 million… Gross profit… 29.1% of sales… net income of $472,000 or $0.05 per diluted common share… cash and cash equivalents of $30.7 million.”
• CEO on Rockwell channel: “We have targeted the top U.S. Rockwell distributors… signed up 3 and hoping to have 2 more… strategy is to focus on the middle market OT customers which tend to have a shorter sales cycle.”

Q&A Highlights

• Channel ramp: Initial AZT sales were direct; management intends to route even direct sales through Rockwell channels as they stand up distributor contracts; expects partner-driven sales to begin as soon as next quarter .
• Overseas markets: No restrictions to selling AZT internationally, expanding with multiple global partners .
• Product roadmap and patents: AZT PROTECT feature upgrade forthcoming; 3 patents issued, 2 expected to issue by year-end, and 2 additional submissions (timeline into 2026) .
• Buybacks: Investors pressed for more aggressive repurchases; management plans to purchase more shares going forward, noting prior blackout constraints .
• Tone on ramp: Management is budgeting for a significant increase in AZT revenues in FY2025, but acknowledges education/enablement and sales cycle realities, especially for large enterprises .

Estimates Context

• S&P Global consensus for Q1 FY2025 EPS and revenue was unavailable due to access limits, so we cannot assess reported results versus Wall Street expectations at this time [GetEstimates error].
• Management’s commentary implies potential upward bias to forward revenue/mix assumptions (AZT ramp, channel activation, cruise/TS momentum), which may lead to estimate revisions as evidence of conversion appears in Q2/Q3 FY2025 .

Reported vs Consensus (S&P Global)

Key Takeaways for Investors

• Mix shift toward higher-margin services with recurring elements supported gross margin expansion and returned the company to profitability in Q1 FY2025 .
• TS remains the cash engine, enabling continued investment in AZT; watch for conversion of Rockwell distributor leads and mid-market OT sales cycles as key catalysts .
• AZT PROTECT adoption is building with marquee customers (energy, pharma) and renewed support agreements; a feature upgrade and expanding patent portfolio may strengthen differentiation .
• Cruise line and ocean freight MSP engagements bolster recurring revenue visibility; management highlighted a second major cruise line order and ongoing retrofits .
• Balance sheet optionality ($30.7M cash) supports dividend continuity and potential acceleration in buybacks as indicated by management .
• Near term, stock reaction likely tied to evidence of channel-driven AZT bookings, margin trajectory from services mix, and clarity on buyback cadence; medium term thesis depends on scaling AZT via Rockwell and other partners in OT markets .

Sources: Q1 FY2025 8-K press release and financials , Q1 FY2025 earnings call , Q4 FY2024 8-K press release and call , Q3 FY2024 8-K press release and call .