CSP Inc. (CSPI) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong momentum in the service segment, strategic OEM relationships, and growth potential for AZT PROTECT, despite a decline in gross margins. The Q&A highlights confidence in the company's direction and significant growth potential, especially in the U.S. and globally. The net income improvement and cash reserves are positive indicators. While management was vague on profitability specifics, the overall sentiment is positive, with strategic growth initiatives and financial health suggesting a 2-8% stock price increase over the next two weeks.
Key Financial Performance
Product Sales Growth 30% year-over-year increase, driven by U.S. Technology Solutions business and large customer purchase orders.
Service Business Growth 7% year-over-year increase, attributed to managed cloud and service practices and customer migration to the cloud.
Revenue $16 million for Q2 2026, compared to $13.1 million in Q2 2025, reflecting overall growth.
Gross Profit $4.5 million for Q2 2026, up from $4.2 million in Q2 2025, due to increased product and service revenue.
Gross Margin 28% of sales in Q2 2026, down from 32% in Q2 2025, attributed to changes in product and service revenue mix.
Product Revenue Gross Margin 15% in Q2 2026, compared to 18% in Q2 2025, reflecting a decrease due to product mix.
Service Revenue Gross Margin 57% in Q2 2026, up from 55% in Q2 2025, due to improved efficiency in service operations.
Research and Development Expenses $818,000 in Q2 2026, a 7% increase from $763,000 in Q2 2025, driven by AZT PROTECT customization and OEM developments.
Selling, General and Administrative Expenses $4.5 million in Q2 2026, a 2% increase from $4.4 million in Q2 2025, reflecting operational cost adjustments.
Interest Income 27.9% increase year-over-year, due to higher financing transactions with customers.
Net Income $264,000 in Q2 2026, compared to a net loss of $108,000 in Q2 2025, supported by a tax benefit from restricted stock awards.
Cash and Cash Equivalents $23.1 million as of March 31, 2026, providing resources for growth strategies and dividends.
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Operating Highlights
AZT PROTECT orders: Orders doubled compared to Q2 2025, with over 10 new customer orders. Deployment is expanding to multiple sites, including a major raw material manufacturer and a global cement manufacturer with a 3-year agreement for over 2 dozen U.S. sites.
New deployments: AZT PROTECT deployed at a leading pet food producer and a cloud-based commercial content automation service.
OEM relationships: Strategic partnership with Acronis to embed AZT PROTECT into their platform, with revenue expected by the end of the fiscal year.
Service business growth: Service revenue grew 6.6% to $4.9 million, driven by cloud and managed services. A new MSP customer generates nearly 6 figures in monthly revenue.
Customer retention: High retention rates contribute to expanding gross margins in the service segment.
Revenue growth: Product revenue grew 30% to $11.1 million, driven by large customer purchase orders.
Gross margin: Service gross margin increased to 57%, while product gross margin decreased to 15%.
R&D expenses: Increased by 7% to $818,000, supporting AZT PROTECT customization and OEM developments.
Land and expand strategy: Focus on expanding AZT PROTECT deployments across multiple sites within customer organizations.
Market awareness: Growing awareness of AI threats and internal 'friendly fire' attacks supports demand for AZT PROTECT.
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Risk or Challenges
Sales Cycle Delays: The 'land and expand' strategy for AZT PROTECT is experiencing delays due to evolving stakeholder alignment, internal review requirements, and changes within customer teams. These factors slow down the deployment process and revenue realization.
Customer-Specific Procurement Processes: Unique procurement processes and development criteria for each customer and site are causing timing delays in AZT PROTECT deployments, impacting the speed of scaling operations.
Dependence on Strategic OEM Relationships: The company is pursuing strategic OEM relationships, such as with Acronis, but these integrations require time to mature, delaying potential revenue generation.
Market Complexity in Cloud Services: The growing complexity of cloud services and unique enterprise needs pose challenges in maintaining operational efficiency and meeting customer expectations.
Cybersecurity Threats: Increasing threats from AI and internal 'friendly fire' attacks require continuous innovation and education to address evolving cybersecurity needs, which could strain resources.
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Guidance & Outlook
AZT PROTECT Deployment: The company is making progress with its 'land and expand' strategy for AZT PROTECT, with deployments expanding to multiple sites within organizations. A significant 3-year agreement was signed for over two dozen U.S. sites of a global cement manufacturer, with potential expansion to over 100 sites globally. Revenue from this contract will be recorded in the fiscal third quarter. The company expects to generate revenue from its strategic OEM relationship with Acronis by the end of the fiscal year.
Service Segment Growth: The company anticipates continued momentum in its Service segment for the remainder of the year, supported by high customer retention rates and expanding gross margins. The managed service practice is expected to benefit from increasing enterprise migration to the cloud and the complexity of cloud operations.
Overall Financial Growth: The company is optimistic about sustained top and bottom-line growth during the second half of the year, with expectations of full fiscal year growth over the previous year.
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Shareholder Return Plan
Dividend Payment: A dividend of $0.03 per share will be paid on June 15, 2026, to shareholders of record on May 21, 2026.
Share Repurchase: The company repurchased 15,510 shares of common stock during the quarter.
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Key Q&A
Q:Why hasn't Victor Dellovo purchased shares despite awarding 35,000 shares?
A:Victor Dellovo stated that he has confidence in the company and its direction, as evidenced by not selling any shares for many years. He mentioned that he might purchase shares in the future if he feels it is the right time.
Q:What is the growth potential for AZT in the U.S. and globally?
A:The U.S. market is not fully deployed, and there is potential for growth. Globally, there is significant growth potential with over 100 plants outside the U.S. being targeted, particularly through a sister company.
Q:What are the estimated savings for customers using AZT?
A:Customers are estimated to save approximately $1,000 per plant per month by reducing patching spend and extending the life of their assets. This also minimizes downtime, which is costly for organizations.
Q:What are the requirements mentioned in the press release, and how do they affect competitors?
A:The requirements are a mix of industry and government mandates. Some competitors cannot meet these requirements due to older software versions that are not being updated to support endpoints. AZT's lightweight software is better suited for older systems.
Q:What advantages does AZT have over competitors in terms of resource usage?
A:AZT is lightweight, using only 1-2% CPU utilization and 16 MB of memory, making it suitable for older systems with limited resources. Competitors' software is more resource-intensive and less compatible with older hardware.
Q:What expertise do the new Board members bring to the company?
A:The new Board members, such as Jim, bring extensive experience in the OT industry, valuable contacts with major manufacturers, and a strong understanding of AZT's value and market strategy.
Q:What is the company's strategy for expanding AZT's adoption?
A:The company focuses on a 'land and expand' strategy, starting with testing and small deployments, then expanding within organizations. They aim to complement IT-focused endpoint protection products and work closely with IT teams.
Q:What is the financial impact of achieving 50% adoption in current sites?
A:Achieving 50% adoption in current sites would move the company in the right direction financially, though it is not specified if it would make the company profitable or break even.
Q:What is the status of the cement producer deal and its potential expansion?
A:The company has deployed AZT in over two dozen U.S. sites and is targeting expansion to over 100 sites globally. Talks are advanced, and the company is optimistic about securing a comprehensive deal.
Q:What is the company's approach to working with distributors and partners?
A:The company relies heavily on distributors and partners, with three major ones and several smaller ones. They aim to build relationships and leverage distributors' customer bases to expand AZT's reach.
Q:How many distributor relationships does the company have, and how are they performing?
A:The company has about 10 distributor relationships, with varying levels of performance. Larger distributors have more aggressive and effective representatives, and the company is working to build rapport and educate them about AZT's value.
Q:What is the company's strategy for proof of concept (POC) deployments?
A:The company is shifting towards paid POCs, where customers purchase starter kits, ensuring commitment from both sides. This approach aims to convert POCs into full deployments and enterprise agreements.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding whether achieving 50% adoption in current sites would make the company profitable or break even. Victor Dellovo stated it would move the company in the right direction but did not provide specific financial details.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADR production
AI fire
ARIA ADR
AZT ARIA
Acronis relationship
CSPi Chief
CSPi market
CSPi product
Cybersecurity solution
Hello CSPi
Officer CSPi
PROTECT order
Service segment
agreement
amount
case
deployment site
enterprise
example
expansion
fire attack
floor
food
infrastructure
land
manufacturer
manufacturing
migration
need
organization
patch
period
plant
requirement
site customer
team
threat
CSPI Transcript
CSP Inc. (CSPI) Q2 2026 Earnings Call Transcript
Positive5-7
The earnings call reveals strong momentum in the service segment, strategic OEM relationships, and growth potential for AZT PROTECT, despite a decline in gross margins. The Q&A highlights confidence in the company's direction and significant growth potential, especially in the U.S. and globally. The net income improvement and cash reserves are positive indicators. While management was vague on profitability specifics, the overall sentiment is positive, with strategic growth initiatives and financial health suggesting a 2-8% stock price increase over the next two weeks.
CSP Inc. (CSPI) Q1 2026 Earnings Call Transcript
Unknown2-14
The earnings call shows mixed results: a decline in total revenue and product revenue, but growth in service revenue and gross profit margin. The Q&A highlights strategic partnerships and share repurchases, but also reveals uncertainties in AZT integration. The dividend announcement is positive, but increased R&D expenses and high tax rates are concerning. Overall, the sentiment is neutral, with no strong catalysts to drive significant stock price movement.
CSP Inc. (CSPI) Q4 2025 Earnings Call Transcript
Unknown12-16
The earnings call shows mixed signals: strong service revenue growth and improved operating loss are positive, but net loss and cash decline are concerning. The Q&A reveals uncertainty in revenue predictability and lack of OEM agreements. While the Acronis partnership and potential endpoint sign-ups are promising, the lack of concrete guidance tempers optimism. Overall, the sentiment is neutral due to balanced positives and negatives.
CSP Inc. (CSPI) Q3 2025 Earnings Call Transcript
Unknown8-14
The earnings call presents a mixed picture: positive revenue growth and cash position, but declining gross margins and higher expenses. The Q&A reveals potential in the AZT PROTECT product and new markets, but management's reluctance to share future projections adds uncertainty. Given these factors and the lack of clear guidance, the stock price is likely to remain stable in the short term.
CSPI Report
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