CSP (NASDAQ:CSPI) executives said the company’s fiscal first-quarter results reflected difficult year-over-year comparisons in product revenue, while highlighting continued growth in higher-margin services and progress in recurring revenue initiatives and the AZT PROTECT cybersecurity product line.
Revenue mix shift and service momentum
Chief Executive Officer Victor Dellovo said first-quarter product revenue declined versus the prior-year period largely because fiscal Q1 2025 included a “one-time product deal” of approximately $4.5 million that did not repeat in the current quarter. He emphasized that CSPi’s strategic focus remains on expanding service revenue and growing its monthly recurring revenue (MRR) base.
Dellovo also said the company’s previously discussed investments in its MSP practice are beginning to generate returns. In the quarter, CSPi signed new MSP customers expected to generate nearly “six figures” in monthly revenue, with the monthly revenue commencing in the current quarter. In a later clarification during Q&A, management said this equated to net new MSP revenue of close to $100,000 per month after the onboarding period required to begin billing new customers.
Gross margin improvement and profitability
Chief Financial Officer Gary Levine reported fiscal first-quarter revenue of $12.0 million, compared with $15.7 million in the year-ago quarter. Product revenue was $6.7 million versus $11.0 million in the prior-year period, which Levine attributed to the absence of the prior year’s one-time transactions totaling about $4.5 million. Service revenue increased to $5.3 million from $4.7 million.
Despite the lower total revenue, gross profit rose to $4.7 million from $4.6 million, which management attributed to higher service revenue and a more favorable mix. Gross margin expanded to 39.3% from 29.1% a year earlier.
On expenses, Levine said research and development expense increased 9.2% to $858,000, reflecting work to support customization of AZT PROTECT deployments and OEM embedding efforts. Sales, general and administrative expense declined by $143,000 to $4.0 million.
Levine said interest income increased 23% year over year, driven by financing deals and interest earned on cash balances. CSPi recorded a tax expense of $280,000, representing an effective tax rate of 75.5%; Levine said the difference from the U.S. statutory rate was primarily due to state income taxes, changes in valuation allowance against certain state credits, and nondeductible executive compensation.
Net income was $91,000, compared with $42,000 in the prior-year quarter. Diluted earnings per share were $0.01, compared with $0.05 in the year-ago period.
AZT PROTECT customer growth, multi-site deployments, and OEM work
Dellovo said CSPi continued gaining traction with its “award-winning” AZT PROTECT cybersecurity solution, citing new customer wins and multi-site expansion with existing customers. He said the company has been in the market with AZT for just over a year and now serves 46 unique customers, including customers with multi-site installations underway. Management said customers span several verticals, including steel, energy, manufacturing, water utilities, pharmaceuticals, food, and telecommunications.
Management also discussed the nature of multi-site expansions, noting that some customers can approve deployments centrally while others require separate purchasing decisions at each site, which can slow expansion. On the call, Dellovo described examples where additional sites were approved across different periods, including a steel customer where individual sites required separate purchase orders and a food-industry customer where a second site was added. He said that after the first site deployment, the sales process can be easier because additional sites may not require another proof of concept.
Dellovo added that CSPi is building case studies from early industry installations and believes many operational technology (OT) customers still lack cybersecurity protections at the level AZT PROTECT provides. He said timing delays can occur due to customer-specific procurement processes, but management remains focused on execution and expects sizable AZT PROTECT sales as the fiscal year progresses.
In addition to direct sales, management said CSPi is advancing OEM relationships, “most notably with Acronis,” to embed AZT PROTECT into Acronis’ platform. Dellovo said integrations take time to mature but represent scalable long-term opportunities. He highlighted CSPi’s first webinar with Acronis, which drew nearly 200 attendees and generated more than 12 demo requests.
Balance sheet, financing activity, dividend, and buyback commentary
Levine said CSPi ended the quarter with $24.9 million in cash and cash equivalents. He noted that the decrease in cash from September 30, 2025 was primarily related to financing deals closed during the quarter, and the company expects to collect approximately $3.3 million from financing payments scheduled over the next two quarters. Levine and Dellovo described customer financing as a way to support high-quality customers, keep CSPi “sticky” within organizations, and deploy cash.
The company also reiterated a quarterly dividend announcement: CSPi plans to pay a dividend of $0.03 per share on March 12 to shareholders of record as of February 26.
During Q&A, Dellovo said the company had been in a blackout period limiting share repurchases, but expected the window to open within 48 hours. He said CSPi planned to buy shares during the quarter.
Outlook and focus for fiscal 2026
Dellovo said the company is “off to a solid start” to fiscal 2026, driven by strong performance in services, and expects “steady, profitable improvements” over the remainder of the fiscal year. He also said CSPi expects to generate operating leverage as revenue grows, supported by infrastructure investments intended to enable meaningful scale.
About CSP (NASDAQ:CSPI)
CSP Inc develops and markets IT integration solutions, security products, managed IT services, cloud services, purpose-built network adapters, and cluster computer systems for commercial and defense customers worldwide. It operates in two segments, Technology Solutions and High Performance Products. The Technology Solutions segment provides third-party computer hardware and software as a value-added reseller to various customers in web and infrastructure hosting, education, telecommunications, healthcare services, distribution, financial and professional services, and manufacturing industries.
