Executive Summary

Revenue increased 18% year over year to $15.45M, with product revenue up 29% and services roughly flat; gross margin compressed to 29% from 34% as mix shifted toward product and component costs remained elevated .
Diluted EPS was $(0.03) versus $(0.02) last year and $(0.01) in Q2; operating loss widened to $(1.22)M on higher SG&A tied to AZT Protect go-to-market investments .
Management highlighted strong momentum in Technology Solutions (cloud and managed services) and AZT Protect channel build-out (Rockwell resellers, South Africa cell towers), pointing to potential top- and bottom-line growth for FY25; Board declared a $0.03 dividend .
No formal quantitative guidance was issued; sequential revenue rose sharply, but margins softened—near-term stock narrative likely hinges on AZT pipeline conversion pace versus sustained cost/mix headwinds .

What Went Well and What Went Wrong

What Went Well

Technology Solutions revenue grew 20% y/y, with strong cloud demand, including a secured Microsoft Azure project for a Florida-based healthcare provider; “we generated significant momentum” and “high interest across our business segments” .
AZT Protect progressed via reseller strategy with new steel, concrete, lumber wins and international expansion (South African cell tower deployments); CEO: “we are confident in our ability to maximize our returns from AZT Protect” .
TS cloud projects scaled to “over 20 active projects” across industries; maritime demand robust, adding personnel to meet current demand .

What Went Wrong

Gross margin fell to 29% from 34% y/y due to mix shift (higher product revenue) and higher component costs; gross profit dipped to $4.45M from $4.58M y/y .
Operating loss increased to $(1.22)M vs $(0.72)M y/y on elevated SG&A (sales/marketing for AZT) and R&D consulting spend to support product enhancements .
Cash declined sequentially to $26.31M from $29.50M, reflecting share repurchases and operating loss; services revenue was only slightly higher y/y, limiting mix benefits .

Financial Results

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Millions)	$13.11	$15.67	$13.15	$15.45
Product Revenue ($USD Millions)	$7.85	$11.02	$8.55	$10.15
Services Revenue ($USD Millions)	$5.26	$4.66	$4.60	$5.30
Gross Profit ($USD Millions)	$4.58	$4.56	$4.21	$4.45
Gross Margin %	34%	29.1%	32%	29%
Operating Income ($USD Millions)	$(0.72)	$(0.35)	$(0.99)	$(1.22)
Net Income ($USD Millions)	$(0.19)	$0.47	$(0.11)	$(0.26)
Diluted EPS ($USD)	$(0.02)	$0.05	$(0.01)	$(0.03)

Segment/Revenue Mix

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Product Mix % of Sales	59.9%	70.3%	65.1%	65.7%
Services Mix % of Sales	40.1%	29.7%	34.9%	34.3%

KPIs and Operating Metrics

KPI	Q1 2025	Q2 2025	Q3 2025
Cash and Equivalents ($USD Millions)	$30.65	$29.50	$26.31
SG&A ($USD Millions)	$4.13	$4.44	$4.89
Engineering & Development ($USD Millions)	$0.79	$0.76	$0.79
Share Repurchases (Shares)	N/A disclosed	23,800	19,000
Dividend per Share ($USD)	$0.03	$0.03	$0.03

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY25	No formal guidance provided	No formal guidance provided; management indicates momentum and potential to grow top and bottom line	Maintained (no formal guidance)
Gross Margin	FY25	No formal guidance	No formal guidance; mix headwinds noted (higher product) and higher component costs	Maintained (no formal guidance)
Dividend per Share	Quarterly	$0.03 per quarter	$0.03 declared for Q3 (payable Sep 15, 2025)	Maintained
Share Repurchase	Authorization	~311k shares remaining as of Q2	~0.3M shares remain as of Q3	Maintained program; activity continued

Note: The company did not issue quantitative revenue/EPS guidance ranges. Management provided directional commentary regarding demand momentum and pipeline conversion .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2025)	Previous Mentions (Q2 2025)	Current Period (Q3 2025)	Trend
AZT Protect (OT security)	Initial entry into utilities/wastewater; building presence in OT	New South African cell tower customer; pharma support renewal; pipeline expansion via resellers	New wins in steel, concrete, lumber; three largest Rockwell resellers engaged; follow-up South Africa camera order; land-and-expand strategy	Accelerating channel-led adoption
TS Cloud/Managed Services	Strong performance; services +17%; cruise lines demand	TS solid despite tough compares; cloud projects and healthcare wins	20+ active projects; Azure project win; maritime demand requiring added personnel	Sustained growth; scaling delivery
Margins/Cost	GM expanded y/y to 29.1%	GM 32% vs 47% prior-year tough comp; component costs	GM 29%; component costs and product mix; SG&A up for AZT sales/marketing	Pressure from mix and investment
Regional/Vertical Expansion	Utilities/wastewater	South Africa (cell towers), pharma	Pacific Northwest lumber, U.S. steel/concrete, South Africa expansion; potential tens of thousands of towers	Broadening across geographies/verticals
Capital Allocation	Dividend $0.03; strong cash	Dividend $0.03; buyback 23,800 shares	Dividend $0.03; buyback 19,000 shares; cash $26.3M	Ongoing shareholder returns amid investment

Management Commentary

“In addition to 18% total revenue growth… we generated significant momentum throughout the quarter for our differentiated AZT PROTECT offering… the cloud-based business continues to exceed our projections… Furthermore, our Maritime business is robust and has required added personnel resources to meet current demand.” — Victor Dellovo, CEO .
“We settled on a land and expand sales approach… in the steel industry… already has seen success in stopping an unintentional update that could have taken down the mill’s production.” — Victor Dellovo .
“We finished the quarter with more than $26,000,000 in cash and cash equivalent… the Board of Directors authorized another $0.03 per share quarterly cash dividend.” — Victor Dellovo .
“Gross profit… was $4,500,000 or 29% of sales… due to our sales mix and reflects higher component costs in the product side of the business… SG&A… up… largely due to increased sales and marketing expenses related to AZT Protect.” — Gary Levine, CFO .

Q&A Highlights

R&D consulting: Additional engineers engaged for high-level testing of AZT improvements; expected to continue for “another quarter” .
Land-and-expand strategy: Entered concrete plants via resellers; targeting multi-site rollouts with endpoints ranging from tens to hundreds per site to accelerate deployment versus 18-month mega-deals .
AZT feature evolution: From 1 countermeasure at launch to 14; now Windows and Linux (XP to 2025), ARM core support, USB lockdown, microsegmentation, SIEM integrations—reflecting customer-driven enhancements .
South Africa opportunity: Integration work to enable gold image deployments; potential to roll out to “tens of thousands of cell towers over the next twelve to eighteen months” via partner ORIX .
Other resellers: Progress with water facility-focused reseller under NDA; management expects “real success in 2026” .

Estimates Context

S&P Global consensus EPS and revenue estimates for Q3 2025 were unavailable; actual reported revenue was $15.45M and EBITDA was $(1.16)M, limiting beat/miss analysis on estimates.*
Limited analyst coverage and absence of target price consensus suggest Street models may need to incorporate AZT pipeline ramp, investment-driven SG&A, and mix-driven margin dynamics going forward.*

*Values retrieved from S&P Global.

Key Takeaways for Investors

Revenue growth is healthy and broad-based, driven by TS cloud/managed services and early AZT Protect traction; watch for conversion of reseller pipelines into 6- and 7-figure contracts over the next 12–24 months .
Margin compression reflects mix and component costs; near-term operating leverage depends on services growth and AZT pricing/mix as SG&A remains elevated to support channel build-out .
Capital return remains steady with $0.03 quarterly dividend and ongoing buybacks, supported by strong cash, though cash has declined sequentially as investments and repurchases continue .
The Russell 3000 inclusion improves institutional visibility, which could aid liquidity and coverage over time—especially if AZT wins scale with major resellers .
Tactical: Near-term catalysts include additional AZT reseller-driven wins (steel, concrete, lumber), South Africa tower rollouts, and continued TS cloud wins; risks include extended sales cycles and persistent component cost headwinds .
Medium-term: Thesis rests on AZT’s differentiation (14 countermeasures, Linux/ARM support) and repeatable land-and-expand deployments across industrial IoT/OT environments via major distributors .
With no formal guidance and limited Street coverage, monitor Q4 commentary (management indicated strong momentum) for evidence of bottom-line inflection versus continued investment phase .

Additional Context

Industry backdrop: Telecom networks face rising stealth intrusions and faster, more powerful DDoS attacks; AI-driven analytics adoption is increasing. This aligns with CSPi’s security narrative around AZT Protect and ARIA solutions .

CSP INC /MA/ (CSPI)·Q3 2025 Earnings Summary