CSP INC /MA/ (CSPI)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 revenue was $13.03M, down 14.9% year over year and modestly lower sequentially, with gross margin compressing to 28.4% from 35.0% in Q3 as product mix shifted; diluted EPS was $(0.18), versus $0.15 in Q4 2023 and $(0.02) in Q3 2024 .
• Management highlighted strong momentum entering FY2025: >100 AZT PROTECT leads from Rockwell, cloud signed >10 new customers, cruise lines poised for a stronger FY2025; recurring revenue reached ~17% of total sales (vs <5% two years ago) .
• Balance sheet remains robust with cash and equivalents of $30.6M; Board declared a $0.03 quarterly dividend payable Jan 15, 2025 and repurchased 2,800 shares for $34K in the quarter .
• Results vs estimates: Wall Street consensus (S&P Global) was unavailable at the time of analysis; no estimate comparison provided (S&P Global data unavailable).

What Went Well and What Went Wrong

What Went Well

• Recurring revenue reached ~17% of sales; management expects further growth in FY2025 driven by Managed Services, cloud and UCaaS, and AZT PROTECT adoption: “We have aligned our sales strategy to maximize AZT PROTECT market adoption… grow the recurring business to 17% of fiscal 2024 sales compared to under 5% of sales just two years ago” .
• Rockwell partnership accelerated AZT PROTECT demand: “Strong relationship with Rockwell Automation generates over 100 new business leads for AZT PROTECT” and management noted a Fortune 500 energy win with rollout to “a few thousand endpoints over the next 3 years” .
• TS segment executed well: “Technology Solution business generated approximately $12.7 million in sales in the fourth quarter” with growing cloud/MSP pipeline; recurring revenue and cruise lines show improving trends into FY2025 .

What Went Wrong

• Revenue and margins declined YoY; Q4 revenue fell to $13.03M from $15.33M and gross margin to 28.4% from 33.8%, with management citing a higher percentage of product sales and mix effects .
• Q4 diluted EPS swung to a $(0.18) loss vs $0.15 in Q4 2023; note the prior-year quarter benefited from a $2.1M Employee Retention Credit, complicating YoY comparisons .
• HPP contribution was minimal in Q4 (revenue ~$0.4M), while AZT PROTECT’s enterprise sales cycles (often 12–18 months) and legacy Myricom wind-down weighed near-term profitability; SG&A rose to $4.95M vs $4.79M YoY .

Financial Results

Consolidated P&L and Key Metrics (USD Millions, EPS in USD)

Product vs Services Mix (USD Millions)

Segment Snapshot (Q4 2024)

KPIs and Capital Allocation

Results vs Estimates

Guidance Changes

No explicit numerical revenue/EPS/margin guidance was provided; management emphasized qualitative drivers and pipeline strength .

Earnings Call Themes & Trends

Management Commentary

• “Our partnership with Rockwell Automation is building and has substantially increased our active AZT PROTECT leads… grow the recurring business to 17% of fiscal 2024 sales compared to under 5%… with additional growth expected for fiscal 2025” — Victor Dellovo, CEO .
• “Technology Solution business generated approximately $12.7 million in sales in the fourth quarter… cruise ship order for professional services… piggybacks on the continued consistent momentum… freight liner operation customer continues to add new ships” — Victor Dellovo .
• “On the HPP side… revenue of $0.4 million, mostly from ARIA based customers… redirected the organization to maximize our relationships with Rockwell Automation and other distribution partners… leads for AZT PROTECT to over 100” — Victor Dellovo .
• “For the fourth quarter… revenue of $13 million… Gross profit… $3.7 million or 28.4%… net loss of $1.7 million or $0.18 loss per share… cash and cash equivalents of $30.6 million” — Gary Levine, CFO .

Note: The press release reports FY2024 revenue of $55.2M; the call transcript’s “$15.2M” appears to be a verbal misstatement (press release and financial tables confirm $55.219M) .

Q&A Highlights

• Prior-year comparison context: Q4 FY2023 included a $2.1M Employee Retention Credit, inflating YoY comps; management confirmed this adjustment .
• AZT PROTECT customer traction: Three Fortune 500 customers (chemical, power, pharmaceutical) plus a Western intelligence agency; one AZT contract “in the millions” and large energy rollout over three years .
• Profitability profile: TS “cash cow” funds AZT R&D; excluding AZT, TS would be “very profitable”; management suggested potential earnings power and later referenced “about $0.56 per share” in context during Q&A (not formal guidance) .
• Pipeline specifics: Multiple distributor agreements underway with Rockwell partners; more than a dozen AZT POCs, with several decisions targeted for January and another government opportunity potentially within ~90 days .
• Program timing: E‑2D work shifted from Q4 into Q1 FY2025; UCaaS billing turned on and pipeline adding 1–2 customers per quarter; ~$1M cruise line professional services contract rolling through 2025 .

Estimates Context

• Wall Street consensus via S&P Global was unavailable at the time of analysis; comparisons to consensus revenue and EPS for Q4 2024 could not be performed (S&P Global data unavailable).

Where estimates may need to adjust:

• With gross margin pressure from product mix and HPP still in early ramp, near-term margin expectations may need to reflect lower services contribution in Q4 and timing of AZT deployments; management’s qualitative outlook suggests improving mix and recurring contributions in FY2025 .

Key Takeaways for Investors

• Q4 softness driven by mix shift to product sales and limited cruise revenue, compressing gross margin to 28.4% and producing a $(0.18) EPS loss; sequential trends were roughly flat on revenue but weaker on margins and EPS .
• The YoY compare is distorted by a $2.1M ERC in Q4 FY2023; underlying demand is improving with cruise lines, cloud/MSP, and UCaaS ramping into FY2025 .
• AZT PROTECT commercial traction is building: >100 Rockwell-driven leads, Fortune 500 energy rollout, and distributor agreements in process; expect more middle‑market adoption (shorter cycles) alongside long enterprise cycles .
• Balance sheet strength (cash $30.6M) and continued $0.03 dividend provide flexibility to invest while supporting shareholder returns; modest repurchases occurred in Q4 .
• Near-term narrative hinges on conversion of AZT POCs, Rockwell channel execution, and cruise/MSP growth; watch for margin recovery as services mix improves and AZT sales scale .
• Discrepancy note: rely on press release/tables for FY totals (FY2024 revenue $55.2M) rather than the call’s apparent verbal misstatement .
• Trading implication: absent consensus, the stock may react more to pipeline/partnership updates and evidence of AZT deployments; margin progression and recurring revenue expansion are key catalysts into FY2025 .