CSP INC /MA/ (CSPI)·Q2 2025 Earnings Summary

Executive Summary

• Q2 FY25 revenue was $13.147M with gross margin of 32% and diluted EPS of $(0.01), reflecting a difficult YoY comp due to a prior-year multi-million-dollar high-margin deal that did not repeat .
• Sequentially, revenue decreased from $15.670M in Q1 FY25 while gross margin improved from 29.1% to 32%, aided by mix, though component costs pressured product gross profit; operating loss was $(0.994)M .
• AZT PROTECT traction continued: 6 new customers signed, pipeline “increased some fivefold” over the past couple of quarters, and a South African cell tower engagement could scale to 7 figures over ~18 months; TS revenue was ~$12M and profitable .
• Board declared a $0.03 quarterly dividend and repurchased 23,800 shares for $384K; cash and equivalents ended at $29.495M with no long-term debt, supporting continued AZT investment and channel buildout .
• No quantitative guidance was issued; management highlighted potential cost inflation on TS resale products and customer spending caution as near-term headwinds while emphasizing AZT reseller momentum (Rockwell, Rexel) and a growing pipeline as key catalysts into 2H FY25 .

What Went Well and What Went Wrong

• What Went Well

  • Signed 6 new AZT PROTECT customers; pipeline increased “some fivefold” over the past couple of quarters, supported by Rockwell and new Rexel USA reseller relationships .
  • TS business remained profitable with ~$12M revenue, and the company secured an Azure migration engagement for a Florida healthcare provider .
  • South African cell tower deployment offers a pathway to broader rollout over ~18 months with potential 7-figure sales, highlighting product differentiation (Linux support, minimal footprint) .

• What Went Wrong

  • YoY revenue decline to $13.147M and gross margin to 32% versus a prior-year period boosted by a single multi-million-dollar high-margin contract; operating income swung to a $(0.994)M loss .
  • Service revenue declined YoY to $4.595M due to the absent prior-year deal; product gross profit was pressured by higher component costs .
  • No quantitative guidance and limited disclosure on backlog metrics despite investor interest; management declined to quantify AZT backlog stages .

Financial Results

Segment mix (revenue):

KPIs and balance sheet:

Notes: Q2 tax benefit of $0.683M primarily from vesting of restricted stock awards; weighted-average diluted shares were 9.343M in Q2 .

Guidance Changes

Management did not issue quantitative revenue, margin, OpEx, OI&E, or tax-rate guidance in the Q2 press release or call; commentary highlighted potential cost inflation on TS resale products and signs of customer spending caution .

Earnings Call Themes & Trends

Management Commentary

• “Excluding a single, multi-million-dollar deal recorded in the year-ago fiscal second quarter, our business generated double-digit sales growth in the fiscal second quarter compared to the year-ago period.” – Victor Dellovo, CEO .
• “Our pipeline for AZT continues to expand, and we believe our total opportunities have increased some fivefold over the past couple of quarters.” – Victor Dellovo, CEO .
• “This customer could generate sales in the 7 figures for our company over the same period and open up new cell tower protection markets for us.” – Victor Dellovo, on South Africa cell tower opportunity .
• “We had a tax benefit of $683,000... We had a loss for the quarter of $108,000 or $0.01 per diluted share.” – Gary Levine, CFO .
• “The technology solution or TS business generated $12,000,000 in revenue and continues to be profitable.” – Victor Dellovo .

Q&A Highlights

• Backlog disclosure: Management acknowledged multi-stage pipeline growth but declined to provide quantitative backlog figures, inviting follow-ups offline .
• Cruise and freighter work: Activity is steady and schedule-dependent on ship drydock timing, limiting precise visibility .
• AZT differentiation for cell towers: Minimal footprint and Linux support fit constrained tower environments where alternatives were complex/inefficient; broader outreach to similar operators underway .
• Cloud-based project backlog: “More than 14… probably in the 20s,” indicating ongoing demand for TS cloud services .
• Capital allocation: Repurchased 23,800 shares for $384K in Q2; $0.03 dividend authorized; prior commentary suggested potential for more repurchases ahead .

Estimates Context

• Wall Street consensus: S&P Global data did not provide Q2 FY25 consensus EPS or revenue estimates for CSPI; the feed returned actual revenue only, so we cannot assess a beat/miss versus consensus for the quarter (Values retrieved from S&P Global).*
• Implications: With no formal guidance and limited consensus coverage, near-term estimate changes likely hinge on visibility into AZT conversion (e.g., South Africa deployment scaling) and TS pricing/cost dynamics discussed on the call .

Key Takeaways for Investors

• The YoY decline and operating loss were primarily driven by a tough comparison against a prior-year multi-million-dollar high-margin sale that did not repeat, while Q2 gross margin improved sequentially to 32% .
• Structural positives include 6 new AZT customers, a fivefold pipeline increase, and the addition of Rexel USA in the Rockwell ecosystem, which together expand channel reach for OT security .
• TS remains a steady cash generator (~$12M revenue, profitable) supporting AZT investment; cloud services and cruise/freighter projects continue to contribute .
• Balance sheet strength (cash $29.495M; no long-term debt) plus ongoing dividends and opportunistic buybacks provide downside support while AZT scales .
• Near-term risks include component cost inflation for TS resale products and potential customer spending delays; absence of quantitative guidance keeps visibility modest into H2 .
• Potential near-term catalysts: expansion of the South African cell tower deployment toward 7-figure scale, additional reseller wins, and conversion of Rockwell-derived leads .

Appendix: Prior Quarter Reference (for trend context)

• Q1 FY25: Revenue $15.670M; gross margin 29.1%; diluted EPS $0.05; services +17% YoY; cash $30.654M; $0.03 dividend .
• Q4 FY24: Revenue $13.033M; gross margin 28.4%; diluted EPS $(0.18)]; recurring revenue ~17% FY24; cash $30.585M .

References:

• Q2 FY25 8-K and Exhibit 99.1 (press release and financials) .
• Q2 FY25 earnings call transcript and corroborating duplicates .
• Q1 FY25 8-K and Exhibit 99.1 and Q1 FY25 earnings call transcript .
• Q4 FY24 8-K and Exhibit 99.1 .

*Values retrieved from S&P Global.